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.
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.
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.
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.
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.
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.
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.
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.
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:
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.
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.
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.
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.
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.
Understanding the bigger picture, how different aspects relate, and how specific procedures work may be difficult in any profession. This is often made worse by a particular language and many terminologies that are only sometimes utilized consistently and uniformly. A trader may take a long warrant position, betting on increasing prices, or a short warrant position, betting on a decrease in the underlying value, depending on the outcome they anticipate for the underlying.
The leverage is excessive if the warrant is a knockout or turbo warrant and may significantly increase the profit. But, the underlying price could go against expectations and beyond the so-called knockout barrier, in which case the value of the knockout warrant would expire with zero value.
The financial markets haven’t changed much for a long time, but recently there has been some movement. The average retail investor has gone a long way, even though there are now more asset classes, instruments, and strategies than ever. Understanding the variables that impact markets has become more challenging.
In Europe, a rising tendency towards self-directed financial investing and increased expertise among individual investors result from a confluence of factors. On the one hand, a generation of people was born into the digital age and have yet to overcome obstacles to utilizing digital apps. Because of this, there is now more autonomy in every area thanks to digital information collecting and sharing. On the other hand, due to technological advancement, even older generations have given up their qualms about access to trading and investment.
Technology advancements have always been crucial in providing access to previously only open regions to a few participants by simplifying and decreasing the cost of such access. Yet, the reason why individuals choose to participate is a sometimes disregarded aspect. Although there are sometimes transient trends or hypes, significant pattern shifts are longer-term occurrences that are often economically motivated, whether the current interest rate environment or longer-term factors like the hazy future of national pension systems.
While certificates had been there for a while, it wasn’t until the dot.com bubble burst that ordinary investors started looking for alternatives to the buy-and-hold equities strategy and ways to safeguard their portfolios or benefit from declining stock prices. Twenty years later, as we have become used to one major crisis being followed by another and as volatility has become a continuous companion, ordinary investors are now expected to look for methods to maximize their trading revenue. One such option is certificates, especially ones with leverage.
The History and Classification
Securitized derivatives are the most popular generic name for goods of such kind that are structured for sale. The first covered warrants were issued in Germany and Switzerland in the 1980s. They afterward spread to France, Italy, and the UK (today, covered warrants represent just a tiny part of traded securitized derivatives). Securitized derivatives in the European market may be separated into investment products (which have 100% participation) and leverage products. The exposure to the performance of an underlying asset is developed via leverage instruments, such as warrants, with a greater degree of exposure than putting the same amount of money directly into the underlying financial instrument or asset.
Investment goods include credit-related notes, participation products that increase yield, and capital protection products. Leverage products are further broken down into continual leverage, knockout products, and products without a knockout.
The European countries of Germany, France, Italy, Sweden, Spain, Switzerland, The Netherlands, Austria, Belgium, and the United Kingdom are the most important markets for securitized derivatives.
How do goods with leverage operate?
The price development of the underlying asset affects how much a leveraged product costs. Although the remaining maturity, the strike price, and the amount of the underlying’s variation (implied volatility) all affect the price of an option certificate, leverage instruments like warrants participate virtually linearly in the underlying asset’s performance. Warrants themselves may be purchased as knockout- or knock-out-free items.
According to how the value of the underlying asset fluctuates with the leverage and has a corresponding impact on the value of the warrant, the leverage of the warrant shows by how much its value increases or decreases.
Knowing the underlying, the subscription ratio, and the knockout barrier are necessary to determine the value of a turbo warrant. The difference between the price of the underlying and the knockout barrier determines the turbo warrant’s value. The subscription ratio is then multiplied by the result. The leverage will then be determined by multiplying this result by the subscription ratio after dividing the underlying price by the turbo warrant price.
Risks and Chances
Compared to a direct investment in the underlying, one of the most noticeable benefits of turbo warrants is that you only have to pay a small portion of the entire value of your transaction to create a position. The possibility of achieving a considerable profit is another possibility. Moreover, investors can access all major financial markets via leveraged products, including commodities, indices, currencies, FX, and stock markets. Trading leverage goods is the only option for retail investors to profit from increasing and falling prices, making it the only opportunity for a retail investor to join into a hedge that is not conceivable without a derivative. Their appeal is increased by the ease with which leverage products may now be traded.
Turbo warrants, on the other hand, are only appropriate for investors who are conscious of and capable of accepting the associated risks. Although it is possible to gain disproportionately from price changes, losing all the money invested is also conceivable. Even if you have invested less than you would have had you purchased the underlying item directly, and the loss is limited to the amount spent by reaching the knockout level, it is still a loss.
What should traders of turbo warrants watch out for?
Consumer behavior has changed significantly as a result of technological advancement. People should also want this in the trade, as they demand high standards of service, prompt replies, flexibility, transparency, and competitive costs in most cases. This is not done to be demanding but rather because there are significant disparities across providers, and on-venue trading is the first thing investors should be cautious of.
Their transactions will be completed on a regulated trading platform, which guarantees non-discretionary handling of orders, a high degree of transparency, and the security of a setting closely supervised by regulatory authorities. The limitlessness of trading—the longer the trading hours, the better—is another crucial factor, particularly for those who trade securitized derivatives with knockouts. High liquidity is also crucial when dealing with turbo warrants since you want to locate the relevant bid and offer quotations for any purchasing or selling interest.
Silver rises a little on Friday but doesn’t continue over $24.00. Bullish traders are favored by the technical setup, which also provides opportunities for further gains. The optimistic picture will be destroyed with a strong breach under trend-channel support.
In the Asian session on Friday, silver makes gains on the previous day’s decent recovery from the $23.15 region or a two-week low. However, silver finds it difficult to acquire traction or maintain it above the $24.00 level, and it has already partially given up some of its small intraday gains.
Technically speaking, the bottom end of an ascending channel that has been in place for more than a month served as support for the XAG/USD on Thursday. The following uptick indicates that this week’s decline from the $24.50 resistance area has reached its conclusion. Additionally, oscillators on the hourly charts have resumed their upward trend and barely manage to stay in the bullish zone on the daily chart.
The aforementioned technical situation favours the possibility of a continued upward movement, but aggressive bullish traders should exercise care given the absence of follow-through purchasing. The XAG/USD still seems prepared to retest the multi-month top, at $24.50, before attempting to overcome the trend-channel resistance. The latter is now valued slightly over the psychological $25.00 threshold.
On the 4-hour chart, the 200-period SMA at $23.55 guards against the near-term downside on the other hand. The overnight swing low, at $23.15, and the trend-channel support, in the $23.40-$23.35 region, are closely behind this. The XAG/USD pair will be more susceptible to weakness below the $23.00 level if there is a clear breach below the aforementioned support levels, which will be considered a new trigger for bearish traders.
Before the XAG/USD finally dips to the $22.10-$22.00 area, the following pertinent support is set around the $22.60-$22.55 region. The latter indicates a static resistance breakpoint and could, at least temporarily, serve to prevent any additional losses.
Gold’s price drops from a five-month high as the US Dollar somewhat recovers intraday. US Treasury bond rates are increasing, putting pressure on the XAU/USD and reviving USD demand.
Risks associated with the price of gold should be limited by bets on the Federal Reserve hiking rates less firmly. Gold’s price falls from the $1,810 area, or the five-month high hit earlier this Monday, failing to benefit from the intraday gain. The XAU/USD slips below $1,800 during the early part of the European session and is now perched on a potentially dangerous 200-day Simple Moving Average (SMA).
The slight US Dollar resurgence is putting pressure on the price of gold. Following an early dip, the US Dollar has only partially recovered from its lowest position since late June, which is anticipated to impact the price of gold denominated in US dollars. The US’s Friday release of solid monthly employment figures and a pleasant surprise in pay growth raised the possibility that inflationary pressures will increase further. This improves the position of the dollar and fuels speculation that the Federal Reserve will continue to tighten monetary policy.
The price of the XAU/USD pair is further hampered by rising US Treasury bond rates. The Federal Reserve’s chairman, Jerome Powell, also predicted that the peak interest rate would be higher than expected this week. Consequently, the price of US Treasury bonds rises throughout the day, which is seen as another factor supporting the US Dollar and pulling money away from the non-yielding Gold price. Further weighing on the XAU/USD is the recent optimism about easing COVID-19 restrictions in several Chinese cities, which has dampened demand for traditional safe-haven assets.
To limit losses, the Federal Reserve wagers on slower rate hikes. At its next meeting on December 13–14, the Federal Reserve is anticipated to increase interest rates by a relatively small 50 basis points, but the downside is anticipated to remain cushioned—at least briefly. In the event of any big corrective slump, this should continue to support the price of gold, requiring careful positioning. The US ISM Services PMI, announced later during the early North American session, is now being anticipated by traders for short-term possibilities.
Technical Gold Price Outlook
Technically, last week’s extended surge past the significant 200-day SMA was seen as a brand-new trigger for bullish traders. Thus, buyers are more likely to be drawn to the $1,783–$1,782 range in the case of a future slump. The price of gold should thus be limited in its upward movement to the support level that served as the horizontal resistance breakpoint between $1,761 and $1,760.
On the other hand, unless some follow-through buying happens beyond the $1,810 zone, bulls may want to delay placing further bets. The price of gold may then continue to increase, perhaps reaching the next significant obstacle on the road to the supply zone between $1,843 and $1,845 near the $1,830 region.
AUD/USD gains momentum on Tuesday as new USD selling materializes. The Dollar is affected by bets on less aggressive Fed rate rises and a rebound in risk sentiment. The COVID-19 problems in China should stop the positive developments and hinder Australian efforts.
On Tuesday, there is some dip buying in the AUD/USD pair at the 0.6640 level, which stays in a purchasing mood into the early European session. Spot prices are back above the 0.6700 level thanks to the upward intraday movement, aided by the resurgence of new US Dollar selling.
The AUD/USD pair is given some support due to several variables hindering Greenback’s ability to profit from the goodish overnight recovery from the crucial 200-day Simple Moving Average (SMA). Market expectations for a modest 50 basis point rate increase in December were reinforced by a dovish evaluation of the November FOMC meeting minutes published last week. This weakens the safe-haven USD and helps the risk-averse Aussie, combined with a minor improvement in the global risk mood.
However, the deteriorating COVID-19 scenario in China should temper any bullish market movement and act as a drag on the Australian Dollar, which serves as a proxy for China. In reality, China recorded a record-breaking number of COVID-19 infections on Monday, and the enactment of additional restrictions sparked a wave of unrest in several places. This intensifies concerns about a further downturn in economic activity and might affect market sentiment in the future.
Furthermore, the overnight hawkish remarks from significant FOMC members should restrict the Dollar’s fall and further limit the AUD/USD pair’s gain. It is important to remember that James Bullard, the president of the St. Louis Federal Reserve, John Williams, and Lael Brainard, the vice chair of the Fed, all reaffirmed that there would be more rate increases. Thus, bold bullish traders should be cautious and take positions for future profits.
However, the AUD/USD pair seems to have ended a two-day losing trend and is still at the whim of USD price movements. The publication of the US Consumer Confidence Index by the Conference Board is currently anticipated by market players as a potential catalyst later in the early North American session. However, attention will continue to be on Wednesday’s speech by Fed Chair Jerome Powell and this week’s important US economic data, such as the NFP report on Friday.
For all beginning traders, it is essential to comprehend the fundamentals of going long or short forex. Whether a trader believes a currency will appreciate (go up) or depreciate (go down) in relation to another currency determines whether they take a long or short position. Defined, a trader will “Go Long” the underlying currency when they believe it will increase, and they will “Go Short” the underlying currency when they believe it will decrease.
Learn more about long and short positions in forex trading, as well as when to employ them, by reading on.
WHAT DOES A POSITION IN FOREX TRADING MEAN?
A person or business that owns a certain quantity of a currency and is exposed to that currency’s swings versus other currencies is said to be in a forex position. It may be a short or lengthy posture. Three qualities define a forex position:
The base currency pair
The path (long or short)
The size
Trades may be made in several currency pairings. They might go long if they believe the currency’s value will increase. Their account equity and the necessary margin would determine the magnitude of the stake they would take. Traders must use the proper level of leverage.
WHAT DOES IT MEAN TO HAVE A LONG OR SHORT FOREX POSITION?
In forex, taking a long or short position is betting on the value of a currency pair to rise or fall. The most fundamental part of dealing with the markets is deciding whether to go long or short. A trader who goes long will have a positive investment balance in an asset with the expectation that it will increase in value. When short, they will have a negative investment balance with the belief that the asset will lose value and be resold at a later date for a lower price.
WHAT IS A LONG POSITION, AND WHEN SHOULD IT BE TRADED?
A transaction that has been conducted with the expectation that the underlying instrument would increase is known as a long position. For example, a trader who executes a purchase order holds a long position in the USD/JPY underlying asset. Here, they anticipate an increase in the US dollar value relative to the Japanese Yen.
For instance, a trader who purchased two lots of USD/JPY has a long position in USD/JPY of two lots. The size is two lots, the underlying is USD/JPY, and the direction is long.
To enter long positions, traders search for purchase indications. Traders employ indicators to search for buy and sell signals so they may join the market.
The descent of a currency to a level of support is an illustration of a buy signal. In the graph below, the USD/JPY declines below 110.274 but repeatedly finds support. When the price falls to this level, 110.274, it acts as a support level and gives traders a buy signal.
The FX market has the benefit of trading almost 24/7. Because there is higher liquidity during extensive trading sessions like New York, London, and sometimes Sydney and Tokyo, some traders choose to trade during those periods.
WHAT IS A SHORT POSITION, AND WHEN SHOULD IT BE TRADED?
In many ways, a short position is the polar opposite of a long position. Trading participants anticipate that the price of the underlying currency will decline when they take a short position (go down). Shorting a currency refers to selling the underlying asset with the anticipation that its value will decline over time, enabling the trader to repurchase it later at a lower price. Profit is what separates the greater selling price from the lower purchase price. As a concrete example, a trader who shorts USD/JPY is selling USD to purchase JPY.
To enter short positions, traders search for sell indications. When the price of the underlying currency hits a level of resistance, this is a popular sell signal. A price level the underlying has had difficulty breaking above is referred to as a level of resistance. In the graph below, the USD/JPY rises to 114.486 and then struggles to increase. When the price hits 114.486, this level turns into a resistance level and provides traders with a sell signal.
Although if an opportunity arises, traders may execute their transaction essentially whenever the forex market is open, some traders choose to trade just during the big trading sessions.
