Market news & insights

Maturity, Yields, Par Values and Coupon payments. These are words that everyone has heard of but not many have a good understanding of what they mean. In this article all these complicated terms will be explained.

Please note that while this information is most relevant for physical bonds, it is still important to understand when dealing with CFD’s as they play an important role in how bond CFD’s are valued. What is a Bond? A bond is an instrument that is used by companies and governments and other entities to raise money through the issuing of debt.

There are different typed of bonds however, the simplest bonds are contracts in which an issuer (Company/Government) receives a payment from the purchaser or bond holder in exchange for the rights to interest plus the principal amount. For example, a government may issue a 10-year bond for $1000 in which they agree to pay 1% interest per annum which will equate to $10 per year. In addition, they will pay back the principal amount once the bond matures.

Key Terms Issuer – The entity that sells the bond initially and must make payments. Holder – The entity who is possession of the bond. Principal – The amount of debt that the government/company has taken that will be paid at maturity.

Par Value – The nominal value of the bond or the price when it was issued. Coupon Payment - The interest payment that is paid to the bond holder. Yield –The coupon payment divided by the Bonds face value.

Maturity – The date when the principal amount of the bond will be paid back. Bond Ratings Generally, Bonds are rated according by agencies, based on how safe the underlying assets are. For instance, government bonds tend to be rated the highest as they are guaranteed by the government, and governments are highly unlikely to default.

In a practical sense, the US government is such a reliable issuer that it should never default on the repayments. This makes Bond’s a great asset to act as a hedge against unsystematic risk. On the other hand, corporate bonds may be given lower ratings depending on their credit risks.

Inverse Relationship between Bond Price and Yield The price and yields for bonds are inversely related. This is important to note as bonds are often charted against their yield and not price which is how derivatives are often charted. Therefore, a trader should be aware of the inverse relationship between price and yield.

This occurs because as the price of a bond changes up or down the interest rate must adjust to ensure that the coupon payment is the same. Assume Bond A is issued at $1000 dollars and 10% interest rate to pay a $100 coupon. 1 Year later that same bond is now priced at $900, however the bond must still pay out a $100 coupon. However, to get a coupon payment of $100, the interest rate must increase.

The formula below shows this: $900 x Interest Rate = 100. Simple Algebra shows that the interest rate = 11.1% Understanding this relationship will make eliminate one of the more confusing elements of trading bonds. Catalysts for Bond Prices The general factors that influence a bond’s price are related to the interest rates and the broader economy.

For instance, if the market interest rate 2% and the bond’s coupon rate is 1%, then the bond will trade at a lower price and vice versa. Subsequently, bonds can be a handy way of tracking the sentiment as they often reflect the feeling in the market. Economic events can impact on the performance of bonds.

When the economy is growing and equities are doing well, bonds tend to perform worse as the return is limited. However, during times of volatility and poor stock market performance, the bond market tends to perform better as the market looks for safety in the guaranteed returns from bonds. Inflationary pressure and low or high interest rates can influence the direction of the way in which bonds are traded.

Generally, in a strong economic market, bonds with longer maturities tend to have higher yields than those in shorter maturity. This is generally due to the thought that the time that is further in the future will has more uncertainty than that in the near-term future. The general exception to this is when the market expects a recession soon.

This causes what is known as an inverted yield curve, in which the shorter-term bond is yielding a higher interest then the long-term bonds. You can trade CFD on the 10 Year US treasury note, 5 Year US treasury Note, UK Gilt, Euro Bund and the JGB Japan Futures on Go Markets Metatrader 5 platform

The United States used 30.28 trillion cubic feet of natural gas in 2021, making them the world’s largest consumer of natural gas. Natural gas consumption in the United States has two seasonal peaks, largely reflecting weather-related fluctuations in energy demand. One of the biggest consumptions of gas is industrial, residential and commercial cooling and heating systems (eia, 2022).

As the world’s largest user of natural gas transitions out of summer, will this change indicate a decrease of their natural gas consumption? Could the decrease in demand for cooling be reflected on the technical charts? On a daily timeframe, natural gas has been on a steady upward trend since the end of June, in tandem with the beginning of summer in the US (seen on the chart below).

A trendline from the beginning of that trend until now can be drawn, and we can see recently that line has been broken by a daily candlestick, closing below the trendline which can indicate a change in trend for natural gas. After the strong break below of the trendline followed by multiple bearish daily candlesticks, we can consequently expect further downside movement for natural gas, after breaking through a strong support at $8.4, in all probability with natural gas currently sitting at $7.895 we could see natural gas come down to the next support level around $7.57.

Have you ever heard the saying, “70% of trading is in the head”? This is because the markets are mostly moved with sentiment, a good barometer to gauge is the Fear and Greed index, emotions trigger actions, there is a reason why there are sellers and buyers in the market at the same time, yes it can be attributed to the way people take in information or understand the data, in a normal day, there are always winners, as there are always losers. So, with that in mind you might understand that this information or data is truly important to traders as it impacts heavily on the markets, as such that, as a trader it would be irresponsible for you to focus solely on the Technical Analysis and disregard the Fundamentals.

However, you could be able to trade Fundamentals without the Technical Analysis. What is Fundamental News? The best way to answer this, is by acknowledging that the performance of an economy is a direct result of different political, social and economic outcomes.

These could differ from the release of figures of the unemployment rate to interest rates, from elections to the GDP, to geopolitical events such as the invasion of Ukraine to a countries coup or BREXIT. All of these have profound effects on the price of commodities, currencies, bonds, or securities, as it would either make the asset easily accessible or as in recent times with COVID it makes is harder to supply it when there is huge demands. Investors are always on the lookout for small details that would help them decipher if their investments are in sound condition or if they need to do something to avoid losing their positions.

Typically, if you are trading CFDs you would look to an Economic Calendar – It’s just like a standard calendar, which provides timelines of specific reports and/or meetings which will take place in the future, from various countries around the world. You could see one here at Forex Factory. A great tool which will aid traders to set up their trades in advance or allow them to make a decision to see if it would be wise to keep a trade open during the event, or open a trade before or wait until the fact to enter the market.

As you begin to follow economic announcements, you may understand why some events—like the consumer price index—may cause markets to move. But you may wonder why it’s important to follow lesser events, like the food price index. Usually, a major event provides an indication of the state of the economy.

But traders follow lesser events because they provide an indication of upcoming major announcements. For example, a jump in food prices may mean the consumer price index will jump as well. An example of an economic calendar is below.

Fundamental Analysis consists of the trader keeping track of all these factors within the reports and how they have affected the market. Fundamental analysis can also cover broader aspects of trading depending on the asset in question. The various fundamental factors can be grouped into two categories: quantitative and qualitative.

The financial meaning of these terms isn't much different from their standard definitions. Here is how a dictionary defines the terms: Quantitative – "related to information that can be shown in numbers and amounts." Qualitative – "relating to the nature or standard of something, rather than to its quantity." In this context, quantitative fundamentals are hard numbers. They are the measurable characteristics of a business.

That's why the biggest source of quantitative data is financial statements. Revenue, profit, cash flow, assets, wages and more can be measured with great precision. Fundamental Trading can be done in various ways depending on your availability – some reports are released late in the night or early morning depending on your perspective, which mean, you may be asleep so trading these may require a level of organisation from your part in terms of understanding how to set up pending orders, with the right risk management in place to take you out of the trade whether it has reached your desired profit limit or the amount you’d be happy to risk losing or trade the action live as you see the reaction of the price movement.

All In all Fundamental news, analysis and trading are a major facet of trading, it is also right to mention, that some fundamental traders would incorporate technical analysis from time to time to create stronger affirmations in their research. Sources: babypips.com, https://www.contracts-for-difference.com/, https://www.investopedia.com/, www.forexfactory.com

In my previous article we discussed, what is an EA and their benefits. To read up on their disadvantages please follow the link to an article written by my colleague Daniel Vary here. Today we are going to discuss how you would use a VPS to enhance the use of an EA, especially if you are running various EAs simultaneously.

What is a VPS? A virtual private server (VPS) is a virtual program sold as a service by an Internet hosting service. The virtual dedicated server (VDS) also has a similar meaning.

A virtual private server runs its own copy of an operating system (OS), and customers may have superuser-level access to that operating system instance, so they can install almost any software that runs on that OS. For many purposes it is functionally equivalent to a dedicated physical server and, being software-defined, can be created and configured much more easily. Depending on the resources that you choose, the location of the server, the virtualization technology, and the quality of your service, the price of your VPS will change.

GO Markets provides a VPS to all its clients, it’s a free trading tool we make available which would otherwise come with a monthly fee. Why would traders use a VPS and what advantages do they offer? As a trader who is looking to incorporate an Expert Advisor in their trading strategy, they may well need the use of a VPS, this helps to facilitate a smooth working condition for one or several EAs running simultaneously and to run as effectively as possible.

An Expert Advisor is a tool that is programmed to work 24/7, it is imperative that the running of your trading system and the vessel which it operates in i.e. computer or laptop is not disrupted, go offline or lose power, otherwise you will find that your EA won’t be able to operate, open, close trades or do whatever you intend to do with it. A simple advantage to think about, is purely that a VPS enhances the EAs capabilities and with it, it may improve your trading goals. A VPS facilitates a smooth and quick link to a reliable server, that means it keeps the connection alive for as long as possible to allow the EA to do its job, getting access to a reliable server should be your highest priority, especially given the nature of how fast paced markets like Forex markets can be.

Choosing a VPS provider? There are few important points that you need to look into when choosing the type of VPS you want to acquire. There are some key features to look understand to get a VPS that will fit within your EAs specifications, your trading strategy and style.

We will look at the specific features of the VPS shortly but first you need to consider which Operating System OS you like your VPS to run on, Windows or Linux? Linux is an open-source operating system and is cheaper than windows. The Windows VPS hosting can be preferred if you are developing in.NET or if you have applications that are designed for the Windows platform.

RAM – It stands for random-access memory. It means that your computer RAM is essentially short-term memory where data is stored as the processor needs it. The Ideal RAM for a VPS for this purpose would be 4 GB.

If you are running several EAs, which use up more than the available RAM, then may need to look for a bigger VPS or simply add another VPS on another account. CPU – Central processing unit, is a principal part of any digital computer system, generally composed of the main memory, control unit, and arithmetic-logic unit. They have proved to work smoothly even at peak times depending on the quality and size of the processor.

You need to have 14nm architecture with a multi-core for multitasking but a 6vCPU works in most normal cases. Hard disk HDD – The traditional hard disk storage space will always be bigger and more inexpensive. But a solid-state drive is recommended for a VPS hosting.

They are fast at rebooting; the performance is certainly huge and transfer speeds are more than the traditional disks. The SSDs are resilient during power failures, which makes them a perfect fit for VPS hosting. A faster hard drive is necessary because even if the RAM and CPU are fast you need an equally faster storage drive to service those requests Go Markets VPS As a valuable client of GO Markets, you can get access to a VPS once you have a live account with us.

Simply, by applying for one via your Client Portal. The VPS runs on both MT4 and MT5 systems and allows you to execute trades using EAs, quicker and easier. GO Markets offers free monthly VPS access to clients completing a minimum trade volume of US$1m per calendar month (approx. 5 round turn FX lots).

If this volume is not met, a VPS service fee will be applied per month which will be charged from trading account. Please see below the specifications of our VPS below. Our VPS is a Shared Hosting, managed Cloud based solutions running on Windows 2016.

Sources: Wikipedia, Babypips, GO Markets, operavps.com, www.websitebuilderexpert.com,

Expert Advisors are programs which are configured to execute trades or read market price movements. When a parameter is met or triggered, it commands the EA to open or close trades on your behalf whilst you are otherwise engaged or sleeping. EAs are compatible to be used on the Metatrader 4 and 5 systems.

Algorithmic trading is a method of executing orders using automated pre-programmed trading instructions accounting for variables such as time, price, and volume. This type of trading attempts to leverage the speed and computational resources of computers relative to human traders. In the twenty-first century, algorithmic trading has been gaining traction with both retail and institutional traders.

It is widely used by investment banks, pension funds, mutual funds, hedge funds that may need to spread out the execution of a larger order or perform trades too fast for human traders to react to. It is now also widely available to retail clients. A study in 2019 showed that around 92% of trading in the Forex market was performed by trading algorithms rather than humans.

What are the advantages of using EA’s? Timesaving – The Forex market is open 24 hours. As a trader you are always looking for an opening in the market for you to execute an order, however, as a human you need to be able to sleep to operate normally, especially if you want to live a healthy life.

With an EA in place, you can time the market, set alerts, watch various markets simultaneously, set open and close trades yourself or allow it to open and close trades on your behalf. For a lot of forex traders who’d like to profit from market movements during a particular trading session but are stuck in a different time zone, using an expert advisor means that they don’t need to worry about trading sleep for pips. Emotionless Trading – The market is wholly affected by emotion, whether the emotion makes you want to buy or sell an asset is down to how you understand the information or how you perceive the charts.

With emotion you can either be gripped in a circle of greed or a loss of confidence which can cloud your thinking and deviate from a trusted strategy. An EA does not suffer from these as it just needs to meet various mathematical parameters to work. Expert advisors are wired to stick to system commands and take valid trade signals, without feeling pain from losses or joy from wins.

Backtesting - Another advantage of having an expert advisor is the ease of conducting backtests, particularly on an MT4 platform. In fact, Babypips have a short tutorial on how to backtest and EA on MT4 and you’d be surprised to know that it just takes a few clicks to see how a system fared over several years. This is mainly used, to make sure that the EA you have acquired, works in the way you want it to work before letting it loose on your live account with real money at stake.

Quick and Flexible – EAs can open and close trades in a blink of an eye; whilst humans tend to second guess these actions by taking price movements and reading indicators, an EA is built to take these decisions with mathematical precision. Depending on the EA you are also able to check multiple markets and have various EAs on one system at the same time. Some of these features are also extremely useful for short term traders who trade on smaller movements of 1 – minute to 5 – minutes charts.

Human Error and Accessibility – Human error have cost many a trader in years past, opening the wrong direction on trades, making the size of the position too big or too small, or opening a trade whilst misreading the technical can all have a negative effect on your trading experience. Having an EA can limit these errors as EAs are programmed to your specifications and they would never deviate from that, unless they are not set properly to begin with, but this is the reason why you would always backtest! EAs are available with a decent variety and with great accessibility to these programs, it is no hard to see why they are becoming the automated popular choice for traders.

In my follow up article on this subject, I will talk about the use of a VPS and popular EAs. If you like to incorporate your MT4/5 systems with EAs, you can talk to one of our Account Managers who will be happy to talk you through the process, feel free to contact us on +61 3 8566 7680 or email me directly on [email protected] Sources: Tradersunion.com, IG, Wikipedia, Babypips.

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.