Noticias del mercado & perspectivas

One of the must-watch economic events this week will be the Bank of Canada interest rate decision. The rate decision is due to be announced at 15:00 PM London time on Wednesday. Why is the announcement important?

A bank interest rate is a rate at which a country's central bank lends money to local banks. The interest rate is charged by the nation's central or federal bank on loans and advances to control the money supply in the economy and the banking sector. The Bank of Canada has an inflation target of 1% to 3% (currently 1%).

The interest rates are changed accordingly to meet the target. The decision to increase, decrease, or maintain the interest rate has a significant impact on the financial markets so it is one of the most closely watched economic events in the calendar. Bank of Canada interest rate changes since 2015 Expectations All eyes will be on the Bank of Canada governor, Tiff Macklem on whether the interest rate remains unchanged at 0.25% or reduced closer to 0%.

Canada has had one of the strictest lockdown measures in the world in its fight to defeat the Coronavirus in recent months, which has had a considerable impact on the country’s economy. Despite that, the rates are expected to remain unchanged, according to economists. Brett House, vice-president, and deputy chief economist at Scotiabank: ''We do not expect a rate cut from the Bank of Canada at its next meeting as rate-sensitive sectors don’t need an additional boost.

For instance, Governor Macklem noted before the holidays that we should watch how housing is faring... Canadian home sales were up 7.2 per cent month-over-month in December to set a record for the month, which completed an annual gain of 12.6 per cent year-over-year. In other areas, retail sales have been above year-ago levels for several months.'' ''Although some immediate risks to the economy have gone up with intensified restrictions to stem the spread of COVID-19, medium-term risks relevant for setting monetary policy have abated.

Vaccines are being delivered about a year ahead of the Bank of Canada’s earlier expectations; the U.S. stimulus and funding bill passed and a government shutdown was averted, which will provide some positive spillover effects into Canada; and financial conditions remain favourable to growth.'' The Monetary Policy Report is set to be released shortly after the rate decision.

Position sizing is simply the number of contracts that you choose to enter for any specific trade. It is this, combined with the movement in price (either positively or negatively) from entry to exit in your trade, that determines your final dollar result for any specific trade. As this result impacts on your trading capital, position sizing, along with appropriate exit decisions and actions, are THE two key factors in both risk management and taking profit.

It is good trading practice to have a “tolerable risk level”, i.e. what you are prepared to lose on a single trade. This, as we have covered in First Steps, is usually expressed as a percentage of your total trading capital (somewhere between 1-4% are commonly used). For example, If your chosen risk level is 3% and the capital in your account is $5000, this means that you would be prepared to risk $150 on one trade.

Why use formal position sizing? A formal position sizing system aims to answer the question “how many lots do I enter to keep any loss within my tolerable risk level if my stop loss is triggered?”. As we enter a trade, we ALL position size, but we have a choice as to how we action this.

We can: Guess. Use a dollar level i.e. when it hits this we are out (you can retrospectively modify a stop level on a trade chart on your trading platform). Use a technical level as a stop loss and work out how many contracts we can enter based on the Pip movement between entry and stop.

Logically, “3” would seem the most robust AND this should be calculated BEFORE entering a trade. So how do I position size? Accepting that the third of the options above is theoretically the optimum method, the process is: a.

What is my “tolerable risk level” in dollar terms? b. What is the desired technical entry and stop loss price levels? c. What is the dollar difference between entry and stop loss exit? d.

Divide ”a” (your tolerable risk level) by “c” to get an estimated position size. If your account is in Australian dollars the calculation is easier than trading either many index CFDs (except for the ASX200) or Forex as there is no need to add a further calculation to convert a profit/loss back into your account currency. Other position sizing issues to consider: Position sizing can only make a difference to your risk management if you adhere to your pre-planned exit strategy.

Be aware of gapping on market open from previous close price. This is at its potentially most severe subsequent to a company’s earnings report release and so you may want to consider avoiding this situation as part of your risk management plan. Once you have mastered basic position sizing, consider whether different market conditions or situations would merit a different tolerable risk level on which to base your position sizing calculations. e.g. a major economic news release increased general market volatility.

In such situations it may be that you enter a smaller position initially and then accumulate into the position if it goes in your desired direction. There is a FREE DOWNLOAD of an excel-based “indicative CFD position size calculator” you are welcome to use to assist you in this important part of trading entry. Feel free to use, but please pay attention to the notes.

Click on the link below. CFD position size calculator v2 Please feel free to connect with the team with any questions you have about share CFDs and how you can add this to your trading.

M any traders utilise options amongst their investment strategies either for income or capital growth. As with Forex and CFD trading, options offer an opportunity to get into a leveraged position giving exposure to the movement of an underlying instrument. One of the key factors that options traders may consider in their choice of specific markets to trade is liquidity, with a higher trading volume impacting positively on the ability to get in and out of trades at a fair price.For the options trader therefore, the breadth of choice and liquidity of US based options, make this market the preferred market to trade.

Like any type of trading, sustainable results require a depth of knowledge and commitment to trading an individual tried and tested system. This system should include in depth reference to risk management throughout. However, due to the market of choice, a trader can make regular profit and yet lose this (and potentially more) through the currency risks associated with trading in US dollars rather than, for example, their base currency of Australian dollars or GB pounds.

Although directional options traders usually choose to invest relatively small amounts with perhaps a few thousands, if trading US covered calls when options are sold over a portfolio of bought shares the investment can be substantial, often into a tens of thousands investment. So what is the risk? The reality is that profits can be 'used up', or losses can be compounded, by adverse currency movements.

The reason for this is simple. Let’s assume that your currency is AUD and it is transferred into USD for trading purposes. The exchange value when converted back to the original currency at some time in the future will be dependent not only on trading results but on the movement of AUD versus USD.

While your money is in your account in USD, weakness in AUD will mean a greater worth in AUD when converted back, whereas a lesser conversion worth will result if there is AUD strength while your money is sitting is USD. Let's give an example See below a weekly chart of AUD/USD. Note the price from the end of January 2018 at a level of 0.8134.

The price at March 20th 2019 was at 0.7100. So, an investment to fund a trading account of AUD$10,000 would have equalled an original USD value of $8134. With the movement over this period the value of the account when transferred back into AUD would have risen to $11468.98 or in other words a 14.67% increase.

So, in this case the underlying currency movements was of benefit. However, if this is the case when there is USD strength (when your money is in USD), with the same AUDUSD currency movement in the other direction, the loss could be 14.67%. This would mean that you would have had to profit by this 14.67% in your trades simply to breakeven (looking at the same chart this is the movement from the beginning of Jan 2016 to Aug 2017).

More than this of course, if you have lost $1468 on a similar price move in the other direction, broke even on your trades during that period so your equivalent AUD value is $8532 your trading return would have to be now 17% profit to recover the original capital. Just to reinforce a previous point, bear in mind of course we have chosen only a $10,000 example, some of you who are trading strategies such as 'Covered Calls' may have considerably more than this in the market (and so considerably more currency risk) than the example we have given. So what can you do?

So, your choices are twofold. Allow your invested trading capital to be subjected to the risks associated with underlying currency movements or, Hedge the currency risks with a non-expiring, low cost Forex position. If option “b” looks attractive, the reality is you can: Remove this risk completely through opening a very small leveraged forex trade (so akin to an insurance policy or a non-expiring put option) Attempt to optimise your hedge by timing its placement and exit i.e. use technical landmarks, to decide when to get in and out of a hedge.

Learn how to reduce the risk We are happy not only to show you how but guide you step by step in how to set this up. There are a couple of practical issues you would need to have in place to manage this well but again we can go through these to enable you to make the right decision for you. We have a webinar session planned that aims to offer you the information you need to look at removing currency risk in your options trading which you would be very welcome to attend.

To access this free training session on 3rd June go to https://attendee.gotowebinar.com/register/6726730073741725196 This session will give you learning relating to: Explore the advantages of hedging against currency risk and potential risks of not doing so. Offer a step by step guide of to how to work out the amount and process of placing a currency “hedge”. Demonstrate how to action this, and where to get any support you need to make it happen.

Discuss advanced approaches to utilising this in your trading including “timing your hedge”. Either way, we trust that this article has been of interest and welcome any comments.

On the back of what has been a pretty punishing month for Oil, now trading below $70 a barrel for WTI crude, we’re going to take a look at Oil, the fundamental drivers behind the price swings and what the future could hold for the Oil markets. For the sake of clarity, this article will be looking exclusively at WTI Crude. So what drove the close to 11% decline in Oil?

What has stalled fund managers and market voices calling for oil to revisit $100 a barrel? Well, mostly it is a confluence of reasons, some rooted in basic economics and one fear-based reaction on the back of the “stock market rout” as it has been dubbed. Now although we are going to be focusing on some of the reasons for this decline, these are not specific to this sell-off alone, these are fundamental drivers in the price of Oil markets.

WTI Crude December Contract - October sell of from $76.72 to low of $68.53 One of the reasons for the sell-off is that of a supply jump. U.S. crude stockpiles rose by 22.3 million barrels, which is the most substantial increase since 2015. This factor comes down to basic economics.

With a boost in supply and the more something is readily available; naturally, the associated value will be lower, and this is what is weighing here. However, the story doesn't end there. It can also provide an insight into how the general populous is leaning as an increase in stockpiles means that the current supply level is too much for current demand.

For example, it could potentially be an indicator in sentiment, companies shifting to renewables, and more and more people moving to electric vehicles, etc. All of these factors would impact the appetite for oil which then leads to an oversupply, subsequently causing a tumble in price as we've seen of late. One of the other factors for Crude also stems from this balancing act of supply and demand.

With Crude spiking to highs not long seen, it sparked some fear that the high prices would weigh on demand for the asset, causing investors to be more cautious and to close out long positions. Since then both OPEC and the International Energy Agency have both revised down the oil growth forecasts. WTI December Contract and S&P Overlay - During the "stock rout" The so-called “stock market rout” also took its toll on the Oil price, with investors dumping risk assets and moving into safe-haven assets, i.e., bonds, gold, etc. this helped to perpetuate Crude’s slide and saw it shed a further 5% of its value.

So, with WTI Crude oil currently, at the time or writing sitting at lows of $66.70 a barrel, what lies ahead for Oil? With continued sell-offs seen in equities markets and steadily more risk-off sentiment throughout the market, we could continue to see Oil slide. However, as markets tend to jump between risk-on & risk-off on a daily, sometimes more frequent basis, we can expect to see plenty of activity in the Oil market, and this will undoubtedly be one of our watchlist staples.

For more information or any questions feel free to reach out to me on twitter This article is written by a GO Markets Analyst and is based on their independent analysis. They remain fully responsible for the views expressed as well as any remaining error or omissions. Trading Forex and Derivatives, including Oil Commodity trading, carries a high level of risk.

What is the Gold-to-copper ratio and why is it important? And more importantly, what could it be telling us? The Gold-To-Copper Ratio Health Check Copper is often referred to as a barometer for economic growth and gold has historically been the safe-haven, a risk-off asset of choice for investors, so naturally comparing the two allows one to take a decent look at broader market sentiment.

Why Copper? Copper is one of the most widely used metals from both established and emerging economies and on top of that it is the only base metal used throughout all aspects of industrialization. Therefore increase in industrialization equates to an increasing demand in copper which ultimately relates to higher copper prices.

For this reason, the metal holds the moniker of "Dr. Copper." and why we can use it as an indicator of economic growth. The Ratio Explained In layman's terms, the gold-to-copper ratio is the current gold price divided by the current copper price.

However what is more import is what this ratio indicates and how it can help us get a firmer understand of the macro forces at play within the market. The gold-to-copper ratio is effectively a visual representation of risk-on/risk-off sentiment. The higher the ratio means that fewer people are buying copper and more are buying gold so what we see is a risk-off sentiment, meaning that people are more cautious with their money and investments, sticking to low-risk products.

The lower the ratio equates to the inverse, vis-à-vis risk-on sentiment and more stimulus into the economy. Gold-to-Copper Ratio Historical Traits In June of 2016, the story on everybody’s radar was bond yields at the lowest since the middle of the financial crisis with the U.S. 10-year yield printing lows at 1.3579% in and then for the next few weeks we saw the yield sit at around the lows and the 1.50% level. Was the gold-to-copper ratio signaling a shift to us?

The ratio peaked in early September 2016 but very quickly began to tumble as Gold prices started to see sell-offs and Copper started to see pretty heavy buying, this resulted in seeing the ratio price drop by about a third. It was during the second leg lower for the ratio that we started to see a bid in bond yields and the transition to a more risk-off environment, which we can see in the chart below that shows both the U.S. 10yr Bond yield (orange line) and the Dow Jones Industrial Index (white shaded line) begin their rally higher. U.S. 10yr Bond yield & Dow Jones Industrial Index So how can we utilise this within our trading?

To quote Samuel Goldwyn “The harder you work, the luckier you get.” and in this case, the harder you work to understand the interconnectivity of financial markets the ‘luckier’ you get with trading. Understanding how certain assets can be used to evaluate market/economic sentiment allows you to move away from being dependent on the obvious indicators, i.e. economic data & mainstream media sources and will enable you to be ahead of the curve, active as a pose to reactive. So, with the Gold price just popping above $1200 an ounce and Copper prices pushing lower on the back of poor Chile exports, we could see the gold-to-copper begin to push higher again, was the Gold-to-copper ratio flashing a warning to us before the significant equity market sell-off on Wednesday the 10th?

Will a push higher in the ratio signal a further sell-off in equities? We will be watching closely, both the commodity prices and equity indices to see where the market takes us next. This article is written by a GO Markets Analyst and is based on their independent analysis.

They remain fully responsible for the views expressed as well as any remaining error or omissions. Trading Forex and Derivatives carries a high level of risk. Sources: Bloomberg

We frequently refer both in the articles we publish and the weekly “Inner Circle” sessions we present, to the benefits of a trading journal. However, the reality is that many traders make the choice not to measure trading despite the logical benefits of doing so. Whether you do or don’t currently, the bottom-line decision you are making is not only whether you do or don’t but how that positions yourself with your trading development.

We would suggest that this overall choice can be broken down into the following three sub-choices. You can make the decisions that are right for you subsequently. Sub-choice 1 - Measuring your system You are either making the choice to: Have certainty on not only whether your trading plan as a whole can create positive outcomes but have evidence to know which component parts of your plan are e.g. indicators you use for entry and exit, comparing strategies you trade, timeframes that work best for you, (and which are not) contributing to such outcomes.

Additionally, it allows you to compare what would happen if you change some of the perimeters on your potential results. OR You have no evidence as to whether your system as a whole and its components parts are working well to serve you in getting the results you desire. Nor do you can test and gather evidence as to what the impact of nay changes you may make to that system, Ask yourself… If I am serious about trading results which choice should I make?

Sub-choice 2 - Measuring you as a trader You are either making the choice to: Know the degree to which you are following your plan or otherwise so you can ultimately make a judgement on: a. Whether your system is working for you (all the points in sub-choice 1 above CANNOT be made unless you are following your plan religiously). b. What you need to work on in terms of tightening your behaviour e.g. on exits or entry c.

Whether there are certain market conditions which you find difficult or are ill-prepared for (so you can fill any knowledge gaps or avoid in the future). OR You can continue to trade as you do, avoiding any self-assessment and growth, and the refinement of your behaviour that may contribute to more positive trading outcomes. Ask yourself… If I am serious about trading results which choice should I make?

Sub-choice 3 - Improving your trading (closing the circle) (let’s assume you are keeping a journal for this one) You are either making the choice to: Measure with purpose that has clear follow through into further development and refinement of your trading plan and subsequently your actions. This facilitates the development of you as a trader based on your individual character and trading style. In practical terms, you ‘close the circle’ with a defined review and develop an action plan based on your review to test and change parts of your plan.

This is evidence-based trading! OR You can measure for measurements sake to on the surface appear to be “doing a right thing” but in reality, failing to unleash the real power of journaling, that is to make an on-going and continuous positive difference to your trading outcomes. Ask yourself… If I am serious about trading results which choice should I make?

In summary, if you have made the choice to read this article to its end you are left with one ultimate choice…to journal or not to journal including the three sub-choices that dependent on which you are making can impact on your trading. So, for one last time, Ask yourself… If I am serious about trading results what should my actions be with what I have read in this article? Our next steps and Share CFD education programme both have indicative trading journal templates to help get you started, and we would be delighted if you could join us.

Drop us a line, click on this link HERE, or give us a call if you want further information on either of these FREE programmes of learning.