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Tag: inflation

  • The End of Fiat Money? Signs of a Shifting Economic Landscape 

    The End of Fiat Money? Signs of a Shifting Economic Landscape 

    Fiat money, once the foundation of modern economies, faces unprecedented challenges in 2024. As the global financial system shows increasing signs of strain, more experts are questioning whether fiat money can continue to hold its value. Fiat money, which derives its worth from government backing rather than physical commodities, has long been the engine driving economies worldwide. However, recent developments indicate that this system may be faltering, leading many to consider whether we are witnessing the beginning of its end.

    The most significant warning sign is the rapid rise of the gold bull market and the consistent U.S. dollar debasement. With inflation soaring, interest rates climbing, and gold breaking out of its historical containment, faith in fiat currencies, especially the U.S. dollar, is waning. Throughout history, fiat systems have struggled when confidence is lost, and current trends show that trust in the U.S. dollar is slipping at a dangerous rate.

    The Fragility of Fiat Money in a Changing Economy

    Fiat money, by design, relies entirely on trust. Unlike gold or other commodities, fiat currencies hold no intrinsic value. Their worth is purely symbolic, determined by the policies of central banks and governments. However, this reliance on trust makes fiat money vulnerable to economic shocks. During the 2008 financial crisis, massive interventions in the form of quantitative easing saved the system, but at what cost? The global monetary base expanded rapidly, and the U.S. dollar debasement accelerated.

    By 2020, another crisis emerged. In response to the COVID-19 pandemic, central banks once again flooded the market with newly created currency. The monetary base surged, but unlike in 2008, the system is now showing deeper cracks. This time, the debasement of the U.S. dollar appears more pronounced. Fiat currencies around the world are under pressure as inflation climbs and the velocity of money slows. The global financial system is standing on precarious ground.

    Gold’s Rise Signals a Shift Away from Fiat Money

    Historically, when fiat currencies falter, gold becomes the preferred store of value. This has been evident in 2024, where gold prices have surged, creating what many are calling the next gold bull market. In the late 1970s, gold prices spiked as confidence in the U.S. dollar crumbled. Central banks had to intervene with massive interest rate hikes to restore faith in the monetary system.

    Today, gold is rising for similar reasons. Investors are fleeing fiat currencies, particularly the U.S. dollar, in search of stability. This shift is more than just a reaction to inflation. It reflects a growing loss of confidence in the ability of central banks to control the situation. As gold breaks through previous resistance levels, it suggests that the demand for physical assets is growing, signaling that the financial landscape is shifting.

    While fiat money can be printed at will, gold remains a finite resource. This limitation is what makes it so attractive in times of crisis. With central banks continuing to expand the monetary base, many investors see gold as the ultimate hedge against U.S. dollar debasement. Every time the U.S. government prints more money to stimulate the economy, it further dilutes the value of existing dollars, pushing more people toward gold.

    Source: Goldseek

    The Velocity of Money and Fiat Currency Decline

    A key indicator of economic health is the velocity of money, which measures how quickly currency circulates in the economy. A low velocity indicates that people are holding onto their money rather than spending it, which typically signals a lack of confidence in the future. During the 2008 financial crisis, the velocity of money dropped sharply, and central banks responded by expanding the monetary base to inject liquidity into the system.

    However, the effects of these interventions appear to be diminishing. Since 2020, the velocity of money has plummeted once again, despite massive increases in the monetary base. This suggests that the underlying problem has not been solved. Rather, it has been postponed by continuous injections of liquidity. As long as fiat money continues to lose value through debasement, people will hesitate to spend, hoarding their currency in fear of further economic instability.

    This creates a dangerous cycle. The more the velocity of money drops, the more central banks will feel compelled to print money, further debasing the currency. This is a stark reminder of the inherent weakness of fiat money systems. They depend on perpetual confidence and liquidity, both of which are eroding quickly.

    Central Bank Policies: Solutions or Temporary Fixes?

    Central banks around the world, especially the Federal Reserve, have employed various tools to maintain the stability of fiat money. Lowering interest rates, quantitative easing, and stimulus packages have become the go-to remedies during times of crisis. While these policies provided temporary relief during the 2008 crisis, their repeated use is now contributing to the systemic fragility of the global financial system.

    For example, in response to the 2020 economic collapse, central banks injected trillions of dollars into the economy, significantly expanding the monetary base. Initially, this solved the liquidity problem, but the long-term consequences are becoming clear. The continuous printing of money has led to U.S. dollar debasement, making each dollar less valuable over time.

    This has created a situation where the system is constantly chasing its own tail. Every new injection of money solves the immediate problem but weakens the currency further. This, in turn, requires even larger interventions the next time a crisis arises. Many experts are now questioning whether the fiat money system can survive another major shock. If confidence collapses entirely, fiat money may be doomed to fail.

    The Road Ahead: Can Fiat Money Survive?

    The future of fiat money depends on several factors. The most important of these is whether central banks can restore confidence in their currencies. If inflation continues to rise and interest rates remain low, the trust in fiat currencies like the U.S. dollar will likely erode further. Without confidence, fiat money cannot function effectively.

    Another factor is the continued rise of gold. If the gold bull market continues, it will further signal a loss of confidence in fiat currencies. In 2024, gold’s breakout to new highs is not just a reflection of inflation fears but also a statement about the weakening role of fiat money in the global economy.

    The rise of alternative currencies, such as cryptocurrencies, also plays a significant role. These new forms of money challenge the dominance of fiat systems by offering decentralized and limited-supply alternatives. While gold remains the ultimate safe-haven asset, the increasing popularity of digital currencies further complicates the future of fiat money.

    Conclusion: A Shifting Financial Landscape

    The signs of a shifting economic landscape are becoming impossible to ignore. Fiat money, particularly the U.S. dollar, is facing an existential crisis. The rise of the gold bull market, combined with the continuous U.S. dollar debasement, paints a worrying picture for the future of fiat currencies. The monetary base continues to expand, but this only exacerbates the problem rather than solving it.

    As the velocity of money continues to decline, it reflects a deeper lack of confidence in the system. Central banks have been able to stave off collapse thus far, but for how long? The financial crisis of 2008 provided a temporary reprieve, but the underlying issues have not gone away. Instead, they have worsened.

    Ultimately, the end of fiat money may not happen overnight, but the signs are there. The global financial system is more fragile than ever, and confidence in fiat currencies is dwindling. Whether through gold or alternative currencies, the future may look very different from the fiat-dominated system of today. The question is no longer if fiat money will fail, but when.

    Click here to read our latest article Gold Price Surge Signals Demand

  • Trump Economic Policies Could Spark Inflation Surge, Study Warns 

    Trump Economic Policies Could Spark Inflation Surge, Study Warns 

    A new study warns that Trump economic policies could significantly increase inflation. The Peterson Institute for International Economics analyzed the potential impact of tariffs, mass deportations, and interference with the Federal Reserve. According to the report, these policies could worsen inflation and cause massive job losses. While Trump’s policies aim to fix the affordability crisis, the study indicates they may backfire, leading to higher inflation and weaker economic growth.

    The report highlights that inflation could surge if Trump’s proposed policies are enacted. Key elements, such as deportation and tariffs, would disrupt the labor market and supply chains. The study also warns that interfering with the Fed’s independence could make inflation worse, potentially harming the U.S. economy for decades.

    The Inflation Impact of Trump Economic Policies

    One major concern raised by the study is the inflation impact of Trump economic policies. Researchers project that inflation could hit 6% by 2026. By 2028, consumer prices might be 20% higher than they would be otherwise. Trump’s across-the-board tariffs and plans for mass deportation would fuel this inflationary surge.

    The proposed tariffs, which range from 10% to 20% on U.S. imports and a massive 60% on goods from China, would increase the cost of goods. Producers would pass these costs onto consumers, making everyday items more expensive. This inflation impact would affect a wide range of industries and products.

    Tariffs typically create inefficiencies and raise prices for consumers. The Peterson Institute study echoes this, emphasizing the tariff consequences that could hit American households. If foreign nations retaliate with their own tariffs, the U.S. could face a severe economic downturn.

    Deportation Effects on the Labor Market

    The deportation effects of Trump economic policies also raise concerns about inflation and employment. Trump has proposed deporting millions of undocumented workers, believing this would help lower inflation and secure jobs for Americans. However, the study suggests the opposite may occur.

    Many industries, particularly agriculture, rely heavily on immigrant labor. An estimated 16% of workers in agriculture are undocumented. Removing such a significant portion of the labor force would create a worker shortage, driving up the cost of production. In turn, this would make food and other products more expensive, further increasing inflation.

    The study presents two scenarios: In the “low” case, 1.3 million workers would be deported, leading to a 2.7% drop in employment by 2028. In the “high” case, with 8.3 million deportations, employment could drop by as much as 9%. These deportation effects would strain industries and push prices higher.

    Tariff Consequences: A Blow to Manufacturing

    Trump economic policies also emphasize tariffs as a way to revive U.S. manufacturing. However, the study shows that the tariff consequences could actually hurt the very industries Trump seeks to protect. High tariffs on imports would make U.S. products more expensive both domestically and internationally.

    For manufacturers that rely on imported materials, tariffs would raise production costs. This would lead to higher prices for U.S.-made goods, reducing their competitiveness. Moreover, if other countries impose retaliatory tariffs, American exports could face even higher barriers, shrinking their global market.

    The Peterson Institute report highlights that U.S. manufacturing, instead of benefiting from tariffs, would suffer more than any other sector. The long-term tariff consequences could include fewer jobs, higher prices, and a less competitive manufacturing base.

    Fed Independence and Inflation Control

    A major concern raised in the study is the potential erosion of Fed independence. Trump has hinted that he would like to have more control over the Federal Reserve’s interest rate decisions. While Trump’s goal is to spur economic growth, the study suggests that such interference could lead to runaway inflation.

    Countries with independent central banks, like the U.S., generally maintain lower inflation rates. The Federal Reserve uses interest rate adjustments to manage inflation and keep the economy balanced. If Trump were to pressure the Fed to keep rates artificially low, it could encourage excessive borrowing and spending, driving inflation higher.

    The study compares this scenario to Argentina, where political interference in central bank policy has led to soaring inflation. The loss of Fed independence could create similar challenges for the U.S., making it harder to control inflation in the future.

    Long-Term Economic Consequences of Trump Economic Policies

    The Peterson Institute study concludes that the long-term consequences of Trump economic policies could last for decades. Even if Trump’s measures are implemented in a single term, their impact could stretch into the 2040s. By 2040, the study projects that prices could be 41% higher than under alternative economic policies.

    The combination of tariff consequences, deportation effects, and weakened Fed independence would have a profound and lasting effect on the U.S. economy. As inflation rises, American consumers and businesses would face higher costs. At the same time, employment opportunities would shrink as industries struggle to adapt to the new economic landscape.

    Other countries might benefit from these U.S. economic challenges. As American industries suffer, foreign competitors could step in to fill the gaps, further weakening the U.S. position in the global market.

    Political Reactions to Trump Economic Policies

    Despite the warnings from economists, Trump remains popular with voters concerned about the economy. A recent poll by CNN shows that 50% of likely voters trust Trump to manage the economy, compared to 39% for Vice President Kamala Harris. Many of Trump’s supporters believe his policies will fuel growth and protect American jobs.

    Trump’s campaign has dismissed the Peterson Institute study, pointing to past successes where expert predictions of economic doom did not materialize. The Trump team argues that tariffs and other economic measures will ultimately benefit the U.S. economy, even though the study suggests otherwise.

    The debate over Trump economic policies continues, with economists warning of inflation and job losses, while Trump’s supporters remain hopeful that his proposals will improve the economy.

    Conclusion: The Risks of Trump Economic Policies

    The study by the Peterson Institute offers a sobering look at the potential inflation impact of Trump economic policies. The combination of mass deportations, high tariffs, and interference with Fed independence could create a perfect storm of inflation, job losses, and weakened economic growth. While Trump’s policies may appeal to voters in the short term, the long-term risks could be significant.

    The tariff consequences alone could lead to higher consumer prices and reduced competitiveness for U.S. goods. Similarly, the deportation effects would leave industries short on labor, pushing production costs higher. And without Fed independence, controlling inflation would become even more difficult in the future.

    As the 2024 election approaches, voters must carefully consider the potential risks and rewards of Trump economic policies. The consequences could shape the U.S. economy for years to come, with far-reaching effects on inflation, employment, and global competitiveness.

    Click here to read our latest article Harris Manufacturing Proposals

  • US Dollar Defies Soft Inflation and Jobs Data, Surges Above Key Technical Level in Recent Rally

    US Dollar Defies Soft Inflation and Jobs Data, Surges Above Key Technical Level in Recent Rally

    Yesterday, the Bank of England (BoE) announced its 12th consecutive rate hike, raising rates by 25 basis points. BoE Governor Bailey noted that the effects of past rate hikes would continue to impact the economy in the coming quarters and that while inflation was expected to fall quickly this year, it remained too high. Bailey also stated that the BoE would stay the course to bring inflation down with further rate increases. The announcement resulted in a drop in the GBP/USD pair, though it was largely driven by a stronger US dollar.

    Despite softer-than-expected US PPI data and higher jobless claims, the US dollar rallied above a two-month bearish trend top. The EUR/USD chart suggests a potential downside correction before rebounding to the 1.12 medium-term target area. The S&P500 remained largely unchanged, with the Nasdaq100 extending gains to fresh highs.

    In Turkey, the BIST100 rallied almost 8% as Muhammer Ince, one of the presidential election candidates, withdrew from the race. His withdrawal increases the chances of a defeat for President Erdogan, which could have significant implications for the Turkish lira. Despite ultra-loose monetary policy and negative real rates, a massive FX intervention program from the Central Bank of Turkey has kept the Turkish lira at levels significantly above fair market value. An Erdogan defeat could lead to a significant devaluation of the lira and readjustment of interest rates, causing wild volatility in the currency and Turkish equities.

    On a personal note, the potential change in government and ruling party after years under Erdogan’s leadership could have significant shockwaves beyond the markets for those who have never experienced a different administration in Turkey.

    If you want to further analyze the US Dollar market click here

  • Forex Today: US Dollar Faces Mid-Tier Data Headwinds in Quest for Foothold

    Forex Today: US Dollar Faces Mid-Tier Data Headwinds in Quest for Foothold

    FOREX TODAY: Good day, traders! Are you ready to rock this Tuesday with the latest Forex news? Let’s dive in!
    After Monday’s sell-off, the US Dollar (USD) is trying to find its feet and stabilize early on Tuesday. The US Dollar Index is gradually recovering from its 10-day low, which it set at 101.20 during the early Asian session. Later today, the US economic docket will feature the February Housing Price Index, March New Home Sales, and the Conference Board’s Consumer Confidence Index for April.

    On Monday, the sharp decline in US Treasury bond yields put heavy pressure on the USD. The benchmark 10-year US Treasury bond yield lost over 2%, dropping below 3.5% for the first time since April 14. However, early Tuesday, the 10-year yield is struggling to stage a rebound. Meanwhile, Wall Street’s main indexes closed mixed with the Nasdaq Composite posting modest losses and the Dow Jones Industrial Average adding 0.2%. In the European morning, US stock index futures are trading in negative territory.

    • The EUR/USD pair capitalized on the renewed USD weakness on Monday, registering strong gains. As of early Tuesday, the pair seems to have gone into a consolidation phase around 1.1050. Since there won’t be any high-tier data releases from the Euro area, the USD’s valuation and comments from European Central Bank (ECB) policymakers could drive the pair’s action.
    • The GBP/USD pair closed in positive territory on Monday and continued to push higher during the Asian trading hours on Tuesday. However, the pair lost its traction after meeting resistance at 1.2500 and was last seen trading modestly lower on the day at around 1.2470.
    • The USD/JPY pair closed flat slightly above 134.00 on Monday and continues to trade in a tight range on Tuesday. Earlier in the day, BoJ Governor Kazuo Ueda said, “we see risk of inflation undershooting forecast as bigger than risk of overshooting, which is why the Bank of Japan (BoJ) must maintain easy policy now.”
    • The Gold price benefited from falling US yields and gathered bullish momentum on Monday. XAU/USD continues to edge higher toward the key $2,000 level on Tuesday. Will it break that level today? Keep an eye out, traders!

    Following Monday’s indecisive action, Bitcoin edges slightly lower early on Tuesday and was last seen trading below $27,500. Ethereum lost 1% on Monday and is already down another 1% on Tuesday, trading slightly above $1,800.

    Forex Today US Dollar mid-tier data

    Stay tuned for more exciting Forex news, and don’t forget to check out our other blogs at Edge-Forex for valuable trading tips and insights. Happy trading, folks!

  • Gold Price Forecast: XAU/USD Under Pressure as US Dollar Strengthens

    Gold Price Forecast: XAU/USD Under Pressure as US Dollar Strengthens

    Gold, gold, gold! It’s been quite the rollercoaster ride for Gold. and it looks like the ride isn’t over yet. For the second day in a row, the XAU/USD is struggling to gain any momentum, despite a modest uptick in the US dollar. What’s going on, you ask? Well, it seems that the Federal Reserve’s hawkishness is making investors confident that interest rates will continue to rise, causing the dollar to rally and putting a damper on gold’s shine.

    But wait, there’s more! The looming risk of a recession and a softer risk tone are helping to keep gold afloat, even as it struggles to make gains. The safe-haven asset is holding steady as investors hedge against potential economic headwinds caused by rising borrowing costs.

    Gold price XAU/USD US Dollar
    Technically speaking, bearish traders are looking for a break below $1,969 before positioning themselves for a further slide in gold’s value. But if the Gold prices can rally and break above the $2,000 psychological barrier, it could signal a reversal in the downtrend and a surge towards the YTD peak.

    So what does this all mean for traders? It’s time to grab a cup of coffee, sit back, and watch the gold market with bated breath. As always, the path of least resistance is uncertain, but with the right strategy and a bit of luck, there’s always a chance for profit.

  • AUD/USD Regains Momentum, Surges Above 0.6700 Level

    AUD/USD Regains Momentum, Surges Above 0.6700 Level

    The US Dollar Index might be dropping, but the commodity currencies are feeling the pressure today. There’s some key data coming up, so buckle up! The US S&P Global PMI report is on the horizon and all eyes are on the economic outlook.
    Now let’s talk about our Aussie friend. The AUD/USD pair may have hit a low during the European session at 0.6678 (ouch!), but it quickly bounced back up above 0.6680. Recently, it even managed to climb back above 0.6700, and it’s still trimming losses ahead of the important US economic data release.

    At 13:45 GMT, we’ll get our hands on the preliminary April US S&P Global PMI numbers. These figures will be highly relevant to market participants who are looking for clues about the future economic landscape.

    The US Dollar Index is currently down 0.10%, trading at 106.80. The slide is driven by a resurgence in EUR/USD and an extension of the decline in USD/JPY. Meanwhile, the commodity currencies block is taking a hit on Friday.

    Earlier today, the April PMI from Australia showed the Manufacturing Index at 48.1, which is lower than March’s 49.1. But there’s some good news too – the Service Index is up from 48.6 in March to 52.6, the highest reading since June 2022.

    AUD/USD US economic data US Dollar Index

    So what’s the short-term outlook for the AUD/USD pair? Well, it’s currently holding above the 0.6680 support area. If it falls below this level, the outlook would weaken for the Aussie. However, while it remains above, AUD/USD is expected to move sideways.

    If the Aussie wants to strengthen its outlook, it needs to rise and hold above 0.6750. Above that level, the next resistance area is at 0.6775, and the last line of defense is at 0.6800.

    We hope you found this article informative and fun! Don’t forget to check out our other blogs on Forex trading and stay tuned for more updates.

  • EUR/USD Hits 1.0940 Following Weak US PMI Data

    EUR/USD Hits 1.0940 Following Weak US PMI Data

    The US Dollar is on fire! It surged across the board following the release of the S&P Global PMI survey data, leaving the EUR/USD pair retreating but still holding above daily lows. The pair fell faster than a skydiver without a parachute from nearly 1.1000 to daily lows.

    What Boosted the US Dollar?

    The PMI data signaled solid growth in private sector output, with the headline figure registering an 11-month high of 53.5 in April (Mar: 52.3). Companies noted that improved demand conditions supported growth, sending the Composite PMI soaring from 49.2 in March to 50.4. The S&P Global Manufacturing PMI and Service PMI also rose, exceeding expectations and coming in at 50.4 and 53.7, respectively.

    The report sent US yields skyrocketing to daily highs, and the DXY turned positive, soaring towards 102.00. Meanwhile, the EUR/USD pair plummeted from its week-long high of 1.0993 to 1.0941, although it remained above the daily lows.

    EUR/USD US PMI data Forex trading

    Earlier on Friday, the preliminary April PMI for the Euro Zone was a mixed bag, with the Manufacturing Index dropping from 47.3 to 45.5 while the Service rose unexpectedly from 55 to 56.6. Manufacturing hit the lowest level since May 200, while the Service rose to its highest level since April 2022.

    Short-Term Outlook:

    Although the EUR/USD pair weakened during the last hour, it still stays above the 1.0920/30 area. Traders can take advantage of the latest market analysis and make savvy decisions by exploring other blogs on Forex trading, currency pairs, technical analysis, fundamental analysis, and economic indicators on Edge-Forex‘s website.

    Don’t miss out on valuable insights that can help you become a successful trader! Check out our other blogs today.

  • New Zealand Q1 CPI Inflation Expected to Rise to 1.7%: Insights from TDS

    New Zealand Q1 CPI Inflation Expected to Rise to 1.7%: Insights from TDS

    Hold on to your hats, Kiwi watchers! The quarterly consumer inflation figures from New Zealand are due during the Asian session on Thursday, and the team at TD Securities (TDS) has some spicy predictions. They’re expecting Q1’23 CPI inflation to heat up to 1.7% q/q (that’s up from 1.4% in Q4’22), and they’re predicting an annual forecast of 7.1% y/y. That’s higher than market consensus, but slightly below the Reserve Bank of New Zealand’s (RBNZ) own forecast.

    What’s driving this spicy inflation? Housing costs and food are the major culprits, but the annual increase in tobacco excise is also contributing to the heat. And while lower fuel prices should help to cool things down a bit, that relief might be short-lived given recent OPEC production cuts.

    New Zealand economy Consumer Price Index Inflation rate

    All in all, TDS thinks inflation is too hot for the RBNZ’s liking and they’re predicting another 25bps hike at the May meeting. So hold onto your wallets, New Zealanders, things are about to get spicy!

    Don’t forget to check out our other blogs for more insights into the latest market trends and news. From the US Dollar to New Zealand’s CPI inflation figures, we’ve got you covered. Click here to read more and stay up to date with the latest developments in the world of finance.

  • Profit Factor: The Complete Guide with Illustrations

    Profit Factor: The Complete Guide with Illustrations

    A trading performance measure known as the “profit factor” is the ratio of gross earnings to gross losses. A lucrative system has a profit factor of more than 1.0; one of 2.0 or more is deemed excellent, and one of more than 3.0 is exceptional. The Profit Factor should be used with other indicators to provide a complete picture.

    What does the Profit Factor mean?

    These days, market analysis programs let traders swiftly examine trading methods. Also, you may make strategy performance reports and use them to evaluate your actual trading outcomes. Backtesting analyzes a system’s performance over a predetermined period by applying trading rules to past data.

    Relevant performance indicators are more than just data; they also serve a variety of essential purposes, including:

    • Control and direct the creation of a trading strategy.
    • Compare trading results to the desired benchmarks.
    • Identify possible issues.

    Since the approach needs to consider the volatility of returns or maximum drawdown, we cannot conclude that it is appropriate based only on the return. As processes must be quantified to be evaluated for performance, the profit factor is the most popular approach.

    Profit Factor

    The profit factor is the gross profit ratio to the gross loss (including fees) throughout the trading period. This performance indicator enables us to comprehend the benefit obtained per unit of risk. A lucrative, non-risk-adjusted system is one with a profit factor larger than one.

    (GrossWinningTrades/GrossLosingTrades) = ProfitFactor

    Hedge Funds employ Profit Factor, an effective risk management measure, to assess traders. The key benefit of the profit factor is that, in addition to being straightforward to calculate, it shows us how much we make for every dollar we lose. Suppose, for instance, that your profit factor is 1.5. You can make $1.50 on an investment of $1.

    How is the profit factor calculated?

    This week, we are developing a brand-new trading system with four entry indications. With slippage and transaction costs, there are two winners worth $500 and $300 and two losers worth $200 and $150.

    The results of the profit factor formula are as follows:

    ($500+$300)/($250+$150)= 2.28

    As a result, the winning transactions outnumber the losing ones by a factor of 2.28. It also shows we can make $2.28 for every $1 spent with this technique. The profit factor indicates that our tactic is lucrative. Four transactions are insufficient to evaluate a trading system’s effectiveness.

    Use this as another illustration:

    Let’s assume we made five deals this time, three of which were profitable, and the other two were unsuccessful. The winners are $250, $150, and $200; $300 and $500 are the losers. By using the algorithm, we get the following Profit factor:

    ($250+$150+$200) / ($300+$500)= 0.75.

    As a result, we may claim that our wins are less frequent than our losses or that we only make $0.84 for every $1 invested. This trading approach requires development.

    We may examine several situations using a few variations of the Profit Factor calculation. One such example is:

    ProfitFactorAlternative = (WinRate * AverageWin) / (LossRate * AverageLoss)

    • The average win is determined by dividing the total number of winning transactions by the total number of deals. It represents the estimated value of a typical successful deal.
    • The average loss is determined by dividing the total number of losing transactions by the total number of winning deals. It represents the estimated loss on a typical deal.

    Let’s use a scenario with five entrance signals in a week to grasp this better. One person wins 5000, and four lose (1500+ $1000+ 500+ 200). The profit component is thus:

    $5000/ ($1500+$1000+$500+$200) = 1.56

    The system is lucrative, as shown by the outcome. However, the measure must demonstrate a high Drawdown and low Win rates. Several losses in succession will be difficult to withstand, and one particular transaction does not guarantee that the overall trading strategy will be successful.

    Profit Factor

    A Good Profit Factor: What Is It?

    We may make more money than we lose if the ratio is bigger than one. In such cases:

    • A factor greater than 1 indicates a successful system.
    • A losing system has a factor that is less than 1.

    Therefore, trading is not recommended for trading methods with a profit factor of little over 1. Since even a little shift in the market might make a trading strategy useless, you should trade these trading techniques first. This is because a low-Profit factor indicates a narrow margin, which is not ideal for trading. Moreover, we’re talking about unadjusted returns, which means that if we’re barely profitable, we should invest in a secure, guaranteed return vehicle like at-bills rather than taking on risk.

    We would always want to use a trading strategy with a large safety margin. Any value between 1.25 and 1.75 indicates a tiny safety margin.

    Also, you will be responsible for paying certain out-of-pocket expenditures such as taxes, market data costs, broker commissions, bank commissions, and fees for trading platforms. These costs are necessary for the trading industry and must be covered out of your trading income.

    Gain-to-Pain Ratio (GtPR)

    A close relative of the profit factor is the gain-to-pain ratio (GtPR). The Gain-to-Pain Ratio (GtPR) and profit factor calculations are identical, except that the GtPR divides the absolute amount of the net trading loss for the period by the net profit of all the weekly or monthly deals.

    To put it simply, the Gain-to-Pain ratio shows how much suffering is necessary to get a certain degree of benefit. The GtPR will always be positive, much like the Profit Factor.

    Whereas a one-year data set is an effective performance measure, GtPR should preferably be maintained over three and five years. A GtPR of at least 1.0 and at least 2.0 is considered great.

    What are the drawbacks of the profit factor?

    The Profit Factor does not disclose the allocation of the transactions in the trading system. A profit factor over one only sometimes indicates a persistent trader. Even if all other transactions have ended in losses, one successful trade might have a favorable effect.

    As a consequence, even while the profit component aids in evaluating the effectiveness of the trading system, it is crucial to evaluate the whole picture and compare the outcome with a few other essential factors. Among these ideas are the following:

    • The number of transactions processed by the trading system.
    • If the maximum drawdown exceeds the trader’s risk limit.
    • The amount of dispersion in a trading system’s outcome.
    • The number of successful trades.
    • The average per-trade profit.

    The trader must identify the important ratios to analyze a trading strategy objectively. There are better courses of action than considering the profit aspect alone. The numerous measures enable us to view the broader picture and provide a more accurate analysis since they complement one another.

    The Summary

    A mathematical ratio, the profit factor, is created by dividing total earnings by gross losses. The most suitable values are between 1.75 and 4. However, we are dubious about values that fall and are outside of this range. A low-profit factor indicates a worse trading strategy, while a ratio of greater than 4.0 may appear unrealistic in real life.

    Automated or algorithmic trading is one approach to addressing these scatterings and volatility in the actual world. This enables you to choose a variety of tactics that may smooth out your returns.

    If you had a portfolio of quantifiable strategies, you could do this. Due to its variety, using many procedures might result in a larger profit factor.

    You need to engage in several markets throughout a variety of time periods if you want to strive for a larger Profit factor. Combining tactics with automatic trading will only increase its likelihood.

  • Top 4 Latest Forex News and Market Analysis for 27 March, 2023

    Top 4 Latest Forex News and Market Analysis for 27 March, 2023

    In this article, we have covered the highlights of global market news about the AUD/USD, USD/CHF, USD/JPY and USD/CAD.

    The AUD/USD encounters resistance around 0.6660 amid varied reactions to the US financial system.

    After a steady rebound to close to 0.6660 in the early European session, the AUD/USD has come under intense assault. The Australian asset has seen significant bids amid the US Dollar Index’s rebound movement (DXY). Before Wednesday’s anticipated publication of the monthly Consumer Price Index (CPI), the Australian Dollar is expected to stay active.

    On Monday morning, S&P500 futures soared higher on expectations that liquidity support for tiny US banks will increase. The 500-US stocks futures basket has maintained its positive leaning from Friday, reflecting a considerable increase in market participants’ risk appetite.

    The US Dollar Index (DXY) is defending the 103.00 support on the belief that positive preliminary S&P Global PMI data may dim prospects of the Federal Reserve completing its rate-hiking cycle (Fed). Manufacturing PMI increased to 49.3 from the previous reading of 47.3 and the consensus of 47.0. At the same time, Services PMI increased to 53.8 from forecasts of 50.5 and 50.6 in the previous report.

    USD/CHF is tracking bearish options market indications below 0.9200.

    As markets become lethargic ahead of Monday’s European session, the USD/CHF pares its losses to about 0.9185 but remains under pressure. So, the Swiss currency pair (CHF) reflects the traders’ apprehension in the lead-up to the important Swiss National Bank’s (SNB) quarterly Bulletin and the Fed’s favored inflation indicator, the Core Personal Consumption Expenditure (PCE) Price Index.

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    But, by the close of Friday’s North American session, the USD/CHF pair’s one-month risk reversal (RR), a measure of the spread between call and put options had posted a three-day losing streak. It’s important to note that the daily RR decreased as recently as -0.010.

    The weekly RR, which printed 0.000 numbers the week before, plummeted to -0.040, which pleased the pair sellers daily.

    Because of this, the USD/CHF pair’s present weakness is still legitimate even if the markets continue to be unsteady before important data or events.

    USD/JPY is in a four-day slump at 130.50, with all eyes on Japan/US inflation data.

    Even if markets are quiet early on Monday, USD/JPY appeases bears for the fourth straight day.

    The recent weakening in the Yen pair may be attributed to traders’ rush to the Japanese Yen (JPY) in pursuit of risk protection and impending concerns about the US and European banking sectors. The recent divergence between the market’s perception of the Federal Reserve’s (Fed) and the Bank of Japan’s (BoJ) upcoming actions seems to be impacting the quotation lately.

    IMF Head Kristalina Georgieva cautioned that “risks to financial stability have escalated,” despite Bloomberg’s inspirational headlines indicating that US and European governments are up for managing the bank fallouts. The report that suggested that Russia was moving its nuclear weapons close to Belarus further increased market apprehension.

    Neel Kashkari, the president of the Minneapolis Fed, signaled worries about a US recession and restrained demands for the US central bank to raise interest rates, which put downward pressure on the USD/Yen exchange rate.

    USD/CAD declines to close to 1.3710 as expectations of a BoC policy tightening restart grow.

    In the Asian session, the USD/CAD pair set a new day low of 1.3725. After the publication of Canadian solid Retail Sales data, the US Dollar Index’s (DXY) muted performance and growing expectations for a return to policy tightening by the Bank of Canada (BoC) support the downward movement in the Loonie asset.

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    S&P500 futures have made significant gains throughout the Asian session as market players have become more confident as US officials explore increasing the emergency lending program. The US Dollar Index (DXY) needs to gain momentum as the market anticipates the Federal Reserve’s policy-tightening cycle to end (Fed). The Dollar Index is holding onto the 103.00 support, although a fall seems more likely.

    Predictions for pausing the Fed’s rate-hiking cycle are intensifying as American banks’ loan standards tighten due to the unrest. Banks are taking greater security measures while distributing advances. Financial institutions have suffered dramatically due to a bloody battle against persistent inflation.

    Positive Retail Sales (Feb) numbers have increased the likelihood that the Bank of Canada will resume its policy-tightening drive, which is good news for the Canadian Dollar (BoC). The BoC stopped raising rates at the beginning of the year because it believed the present monetary policy was restrictive enough to keep inflation under control.

    Please click here for the Forex News Updates from 24 March, 2023.