Market news & insights

What is an ETF Most people have heard of ETFs but not everyone knows what they are. An ETF is an Exchange Traded Fund and they are extremely popular amongst retail investors and novice investors. Companies such as Beta shares, Vanguard, Blackrock and others create and manage these holdings on behalf of investors.

An ETF is a collections of stocks that is grouped together to generally replicate the structure and weighting of an index such as the ASX200 or the Nasdaq. Alternatively, an ETF can also be a collections of assets that represents a sector or industry such as an Energy ETF. The market for ETFs has grown substantially with new ETFs being created regularly.

The value for ETFs in the USA by the end of November 2021 was worth 3 Trillion dollars. The advantages of investing in ETFs is that they are generally well diversified and that they don’t require constant administration or management. In addition, they are seen as being relatively passive as holders of shares of the ETF do not need to manage the buying and selling of the holdings of the ETF.

Many ETFs offer dividend reinvestment plans included many investors will not look at their holdings for a long time. The truth of ‘Passive’ Investing Are ETFs really passive? The reality is ETFs require a great deal of management and administration.

The managers of the ETFs must constantly adjust their holdings accurately to reflect either the rules of the ETF or the weighting of the companies on the index. Therefore instead of the ETFs seemingly operating independently they are actually constantly changing all the time. Some ETFs will adjust by buying or selling shares at the end of the trading day.

As indices rebalance, usually every three month, six months or 12 months, the ETF must reflect those changes. The ‘Flow’ on effect The issue is when an Index rebalances, the ETF is required to buy or sell the stocks that are being removed or added. As ETFs have such large holdings in the individual companies their buying and selling can often have quite a strong effect on the price flow of the shares.

This problem is exacerbated with ETFs that hold small cap companies. These smaller companies are even more at risk of a run by an influx of money coming into an ETF’s buying/selling patterns. This can lead to undesirable outcomes as the managers of the ETF must fight themselves to reach their required buy/sell volume of assets.

Potential Issues Blackrock is one of the companies that creates and hold ETFs in various sectors. One of its ETFs tracks 30 energy stocks. At one stage it held 8% of the shares of one of its holdings of one stock.

The cashflows from investors into the ETF were artificially driving up the price of the stock. Essentially, with so many shares to buy and sell, the ETF is ‘fighting itself ‘to fill its orders. This sees a very sharp increase/decrease in price usually with large volume.

In response to this unique problem the S&P Dow Jones Index in consultation with Blackrock created new rules for holdings to be added to the ETF and improve liquidity. For traders, ETFs create potential trading opportunities because as the old saying says “follow the money”. The ‘liquidity vacuum’ that ETFs create can often be quite aggressive moves to a stock’s price action substantially.

Trading FOREX, equities, commodities, and any other asset can be an emotional rollercoaster. With so many different emotions and external factors difficulties impacting a trade, it is crucial that before any trade is executed a trading plan is produced to minimise the impact of the ‘noise’. Generating the Idea The first step to any plan is to generate a trading idea.

Trade ideas, come from one of three sources. A fundamental source, a technical source, or a mix of both. What does this mean exactly?

Well, when generating ideas from a fundamental perspective, a trader can generate idea based on economic events, monetary policy from a Central bank or company relevant information just to name a few. From a technical perspective, a trader may find that an asset is trading near a potential support or resistance level or developing into a breakout pattern. Alternatively, the price may have touched an important moving average which indicates it may be ready to trade.

Traders can also put these ideas together to come up with even more robust trading ideas. Background economic factors and sector analysis Before entering a trade, a good trader should have at the very least a rudimentary understanding of the relevant sector or economic factors that may influence the trade. For example, a trader decides to trade the AUDUSD currency pair.

The trader has seen that the price is approaching a short-term support point and decides to buy the pair expecting the price to bounce of the level. However, the trader is not aware that the Federal Reserve has just increased interest rates which has increased the value of the USD. Consequently, the price goes against the trader.

Technical breakdown Prior to entering any trade, the trader should analyse the price chart and set up relevant support and resistance levels. This allows the trader to have a clear idea of key supply and demand zones for the asset before the emotions of the actual trade become prevalent. To effectively go about this step, support and resistance levels can be analysed on multiple time frames to gain an even greater edge. [caption id="attachment_272243" align="alignnone" width="2560"] Business Team Investment Entrepreneur Trading discussing and analysis graph stock market trading,stock chart concept[/caption] Entry condition Having a trade idea is one aspect however having a clear entry criterion will help reduce the impact of emotion when watching the trade unfold.

Some examples of potential entries conditions can be related to a break and retest of a certain level for an entry or waiting for a specific candlestick pattern. Furthermore, an entry may also be defined by a disproportionate increase in volume supporting a breakout. Exit Conditions Like determining entry conditions having pre planned exit points can improve the management of emotions during also trade whilst also enhancing risk management.

Setting take profit targets/stop loss areas will help ensure that a trade is well structured even before initiating the trade. Having pre-determined exit points can also help determine if a trade is worth entering in the first place as it allows for a determination of the potential risk reward before execution. Risk management No matter whether the trade is a scalp, swing trade or longer-term investment, each should have clear risk management guidelines.

Good risk management involves the use of stop losses and correct sizing of a trade. One method that can be effective is to have a maximum amount of the total account that you are willing to lose per trade. This could be a percentage figure or a fixed amount.

For example, if the total account size is $10,000 and you decide that the maximum loss per trade is 1%. This means that the maximum loss per trade would be $100. The next step is to then set stop loss.

The stop loss in many cases should be independent of the actual maximum risk amount. The stop loss level should be calculated before the sizing. Once the stop loss is set the size of the trade can be determined.

Risk management is perhaps the most crucial element of the trading plan because minimising losses is crucial to any long-term success in trading. Whilst having a clear trading plan will not guarantee success it will help remove many behavioral biases that can impact on a trade.

Imagine having access to technical analysis across all the major markets, updated around the clock in real-time and of the same calibre that investment banks around the world receive daily. Then consider having all your favourite Forex and Commodity markets analysed with a trade entry, exit, profit taking levels and a price projection. And what if you could have the analysis running live on your MT4 charts providing trading opportunities throughout your trading day, allowing you to focus on your position sizing?

It may sound like a pipedream, but in fact, this is what you have sitting at your fingertips for those who qualify (don’t worry, qualification is quite simple). What we are talking about is the technical analysis service provided by the research house, Trading Central, and they have been helping traders with their service since 1999. So who are Trading Central and how can they help me?

Trading Central is an independent and leading provider of financial research and technical analysis of financial products. Their approach is simple yet very affective – they combine a technical analysis approach to determine price targets using a range of trading indicators. They now provide their services to more than 100 global financial institutions in 30 countries around the globe.

We are proud to say we have partnered with Trading Central as a result of their proven track record in delivering high-quality analysis of the financial markets and in particular, they extensively cover the Forex and Commodity markets for qualified GO Markets clients. Top 3 ways you can benefit from their research 1. Daily Newsletters with trade alerts Delivered twice a day, the daily Forex technical analysis e­mail service provides you with visual and technical analysis newsletters that detail trading strategies, predictions, commentaries as well as key levels (support, resistance, target, stop pivots) on multiple time frames.

The newsletter provides short to medium term analysis on the following products: AUDUSD, EURJPY, EURUSD, GBPUSD, USDJPY, HANG SENG, SPI 200, & SPOT GOLD. We regularly get feedback on how handy it is to have the key pivot points outlined clearly on each of the instruments they analyse. 2. Web Portal / Research Platform Access Trading Central’s global research directly through the Trading Central web portal.

Receive up-to-the-minute technical analysis on forex, indices and precious metals as Trading Central provides updates throughout the trading day. If you’re a regular technical analysis user who knows what you are looking for, the web portal is a quick and easy way to search for intra-day, short and mid-term updates. There’s a ‘search box’ for instant access, or you can select a report on individual asset classes (Indices, Forex and Commodities).

For those traders who have specific criteria, the web portal has pre-made filters allowing for a quick search and the ability to customise the screen. In addition, you are able to have instant access to the information that matters to you by creating a customizable watch list. 3. Technical Analysis Plug In The Technical Analysis plug-in in MT4 is a user friendly interface offering actionable content and customizable timeframes, allowing traders to fill in orders and program trades based on levels provided by Trading Central.

The MT4 plugin displays Trading Central’s technical analysis strategies, views and market commentaries, as well as Trading Central’s key levels (support, resistance, targets, stop pivots) directly on your MT4 platform. It also allows you to execute orders directly from your MT4 charts based on the levels provided by Trading Central. So whether you’re a novice or an experienced trader, Trading Central can be used to either provide original trade ideas, or provide a handy second opinion.

All major countries’ economies have one thing in common; they are all subject to a central bank. Here in Australia is no different, we have the RBA Reserve Bank of Australia. Their roles are largely the same everywhere: a key role of central banks is to conduct monetary policy to achieve price stability (low and stable inflation) and to help manage economic fluctuations.

Central banks conduct monetary policy by adjusting the supply of money, generally through open market operations. For instance, a central bank may reduce the amount of money by selling government bonds under a “sale and repurchase” agreement, thereby taking in money from commercial banks. The purpose of such open market operations is to steer short-term interest rates, which in turn influence longer-term rates and overall economic activity.

Another key factor is that they have a hand in influencing Interest Rates. This is used to stimulate economies and keep inflation under control (or at least try to do so). For traders, keeping in touch with what our central banks say is hugely important as this can ultimately help you make a profit, or it can turn trades into losses.

This brings me nicely on to perhaps the biggest, or at least one of the most influential roles of the Central Banks: they directly or indirectly have one of the biggest effects on commerce, business and currency fluctuations all over the word. The FED. Keeping an eye on your Economic Calendar, can be beneficial if you are a trader who likes to keep up with the latest reports on the finance of a country, or in this case The FED.

The 26 th January 2022 Federal Reserve meeting might be the single most critical event in determining the future of the economy (directly in the US and indirectly to the rest of the world), here’s a breakdown into why is so important (and maybe why you should care). 2021 was a year of crazy growth, if you bought Stocks, Crypto or Real Estate in 2020, early 2021, you would have personally seen considerable gains compared to recent years. Economic boom? Sounds great!

Unless it goes too far, and the economy overheats. An economy which overheats, is expanding at a rate that is unsustainable in the long term, a red flag that accompanies that is high inflation. It is no secret that the US (and other major economies) has experience high inflation in last few months.

The FED is now faced with a critical decision: increase interest rates or keep them largely the same. Fed Chair Powell is expected to signal to the markets which way the FED is leaning. Two possible outcomes: Do not raise interest rates – Likely the engine keeps running and keeps overheating.

More record highs for the S&P, Stocks, Crypto, Real Estate. Asset prices keep rising… And inflation keeps rising, food becomes more expensive, fuel becomes more expensive, etc. etc. Raise interest rates – Effective way to slow the economy down.

The “eeek” is, it can deepen the current dip being seen in the markets and potential cause a recession. Economists often talk about a soft landing. It means a slow down of the economy without a crash.

A soft landing is easier when inflation is controlled (see below). However, this has usually successfully been done when inflation is under control and is impossible once inflation hits crazy highs – or once the economy has overheated. (See below) In short, if Powell advises that a series of aggressive hikes is coming, a recession becomes likely and expect movements in the markets whether you are trading a USD pair of the S&P. The FED and its policies drive our economies and understanding their roles, its history and their future plans, can help shape your economic future.

Update: The Federal Reserve concluded Wednesday its January monetary policy meeting, indicating that a potential rate hike could come in March. The major stock market averages initially jumped around 2 p.m. ET, when the Fed released its policy statement.

However, stocks gave up those gains and turned lower as Chairman Jerome Powell answered questions from reporters. Christian Ramos Sources: Wikipedia, Kalshi, CNBC, RBA

Cash stock indices such as the Dow 30, FTSE 100 and ASX 200 are made up of constituent stocks which is where their price is derived from. These constituent stocks of an index will periodically pay dividends to shareholders, causing a drop in that stocks price and impacting the overall value of the index. With GO Markets this index adjustment will be made at the open of the index on the ex-dividend date of the underlying stock(s).

This price drop in the index will affect the PnL on an open index CFD trade, to compensate this, there will be credit or debit that will be included in the swap that is made around 00:00 server time. If you have a long index position you PnL will be negatively affected so you will receive a credit in the same amount as the dividend adjustment. If you have a short index position you PnL will be positively affected so you will receive a debit in the same amount as the dividend adjustment.

It’s an important point to remember that index traders do not profit or loss from these adjustments. It is a zero sum situation where any PnL change has a corresponding debit or credit to compensate. Example 1: You have a buy position on the ASX200 contract of 10 lots at 00:00 server time.

The next trading day multiple companies go ex-dividend resulting in a 20 point drop in the ASX200 at the open. The swap on this position will be credited $200 AUD (20 points * $10 per point exposure). The ASX200 will open 20 points lower than it would have without the adjustment.

As a result, the PnL on the buy position is $200 worse off, which was compensated for by the swap credit you received. Example 2: You have a sell position on the FTSE100 contract of 10 lots at 00:00 server time. The next trading day multiple companies go ex-dividend resulting in a 15 point drop in the FTSE100 at the next open.

The swap on this position will be debited £150 GBP (15 points * £10 per point exposure). The FTSE100 will open 15 points lower than it would have without the adjustment. As a result, the PnL on the sell position is £150 better off, which was compensated for by the swap debit you received. (Please note, as dividends are combined with normal financing adjustments, the swap will not be exactly the same as the dividend only) You can view the trading hours and upcoming swap/dividend adjustments in the specifications of an instrument.

Example of ASX200 before a 20 point adjustment below:

Market response to any specific economic data release is far from standard even if actual numbers differ greatly from consensus expectations. Rather the market response is based on context of the current economic situation. This week’s non-farm payrolls, being one of the major data points in the month, is a great case in point.

There are many factors and of course the key one for you as an individual trader is your chosen vehicle you are trading (and of course direction i.e. long or short for open positions). The context of today’s impending non-farm payrolls from a market perspective is interest rate expectations going forward. This week the Fed gave the market the expected.25% cut that was already priced into currency, bond and equity market pricing.

The market response however, as this was already priced in, was as a result of the accompanying statement which was not as dovish as perhaps anticipated and a reduction in expectations of a further imminent cut. From an equity market point of view the result, despite the interest rate cut, was to sell off, whereas from the USD perspective this lessening expectation of further rate cuts was bullish. Perhaps this could be viewed as contrary to what the textbooks would suggest is a standard response.

So, onto todays non-farm payrolls (NFP) figure… Logic would suggest that a strong number is good news for the economy, and so should be positive for equities and perhaps bearish for USD. However, as this may be a critical number in the Feds decision making re. interest rate decisions, a strong NFP is likely to have the opposite effect. A weaker number is likely to be perceived as potentially contributory to thinking that another rate cut may be prudent sooner and so despite on the surface being “bad news”, it would not be surprising to see equities stronger and USD weaker.

It remains to be seen of course what the number is and the actual response but is perhaps a lesson in seeing new market information within the potential context of the current economic circumstances and of course incorporate this in your risk assessment and trading decision making.