If You Are into Currency Trading, You Have to be Ever-mindful of Forex Fraud
Forex trading has come of age, as its popularity has soared over the past decade, but that does mean that we can turn a blind eye to the possibility of fraud, especially if it disguised within a cloak of bad business practices. The Commodity Futures Trading Commission (CFTC) and the National Futures Association (NFA) are the “policemen”, if you will, in this investment arena, providing regulatory oversight and administering a host of programs to protect and educate the average consumer/investor.
Retail forex trading is now a safer environment, indeed, due to the tireless work of these two organizations, but, despite many arrests and convictions, there will always be a criminal element within our society that attempts to prey on the unwary. As any security professional will tell you, your first line of defense against these thieves is awareness. Once you understand how you could be possibly duped, then it is up to you to be skeptical and ever mindful of where danger may be lurking. Listen to your gut, then be prepared to walk the other way.
A vast majority of the participants in the forex industry, however, are legitimate, but the Internet has lulled us into a false sense of security when dealing with the “unseen” business partner on the web, allowing our trust to be obtained rather easily. When you add greed to the equation, the fraudster can ply his various schemes with ease.
Your primary focus will be on your broker, but you must also be wary of fund managers, software and signal providers, and just about anyone with a clever marketing pitch that promises high rewards with very little risk. Here are a few tips to guide your protective efforts:
- Overseas Forex Brokers: There are plenty of them, and many got their start in London, the financial center of foreign exchange. Look for longevity, as a rule, and validate that they are in compliance with a good regulatory agency. Rules are not as strict as in the U.S., and a few brokers may cross the line occasionally. A safe broker will always segregate your deposits in a Tier-1 bank, far away from their operating offices. The favored fraud scheme is to promise large sign-up bonuses to get your initial deposit, but when it comes time to withdraw, you run may into a stonewall. Just remember that trying to exert your legal rights in a foreign jurisdiction is fraught with peril.
- Domestic Forex Brokers: Be careful here, too. Check with the CFTC for registration credentials and that they maintain the proper level of net capital. Experience counts, but review testimonials to validate claims made.
- High-Yield Investment Programs (HYIP): Beware any program that promises an easy path to riches or high returns with little risk. This tip applies to both brokers and all marketing types that wish for you to buy their management expertise, trading robot, system, or signal service. If it were so easy, why aren’t they off making millions instead of pressuring you for a few bucks? If it sounds too good to be true, it most definitely is in the forex world.
- Re-quotes, Slippage, and Stop-Loss Hunting: Market makers, as opposed to ECN/STP brokers, can be tempted to manipulate the bid/ask spreads offered. Good brokers do not do this, but if you notice a high prevalence of questionable executions of your orders, then it may be time for a change.
These are a few tips to help get you started, but the CTC website can help broaden your awareness, the key to fraud prevention.
The Moving Average Convergence-Divergence (MACD) indicator is one of the easiest and most efficient momentum indicators you can get. It was developed by Gerald Appel in the late seventies. The MACD moves two trend following indicators and moving averages into a momentum oscillator by subtracting the longer moving average from the shorter moving average. The result is that the MACD gives the best of both worlds: trend following and momentum. The MACD is continually changing above and below the zero line while the moving averages come together, cross and diverge. Traders can search for signal line crossovers, centerline crossovers as well as divergences to generate signals. For that reason the MACD is unbounded, it is not necessarily useful for identifying overbought and oversold levels. Note: MACD is pronounced as either “MAC-DEE” or “M-A-C-D”. Take a look at the sample chart with the MACD indicator in the lower panel:MACDCalculationMACD Line12-day EMA - 26-day EMA)Signal Line:9-day EMA of MACD LineMACD Histogram:MACD Line - Signal LineThe MACD Line is the 12-day Expotential Moving Average(EMA) minus the 26-day EMA. Closing prices are used for these moving averages. A 9-day EMA of the MACD Line is plotted with an indicator to function as a signal line and identify turns. The MACD Histogram denotes the difference linking MACD and its 9-day EMA, the Signal line. The histogram stays positive when the MACD Line is above its Signal line and negative when the MACD Line is below its Signal line. The values of 12, 26 and 9 are the typical setting used with the MACD, but other values can be exchanged depending on your trading style and goals.InterpretationThe MACD is about the convergence and divergence of the faster and slower moving averages. Convergence occurs when the averages move towards each other. Divergence occurs when the averages move away from each other. The shorter moving average is faster and more responsive. The longer moving average is slower and less reactive to price changes. The MACD Line moves above and below the zero line – also known as the centerline. The direction, of course, depends on the direction of the moving average cross. A positive MACD is when the shorter moving average crosses above the longer moving average. As the shorter moving average moves further above the longer moving average (diverges) this means the stock price upside momentum is increasing. When the short moving average drops below the long moving average, it demonstrates that the stock shows a downward momentum.The yellow area shows the MACD Line in negative territory as the short line is below the long line. In this chart, the crossing occurred at the end of September (see the black arrow) and the MACD moved diverged further into negative territory as the short moving average moves further away from the long moving average. The orange area highlights the period of positive MACD values, which is when the short moving average moves above the long moving average. Notice that the MACD Line stayed below during this period (red dotted line). The red line means that the distance between the slow EMA and long EMA was less than 1 point, which is not a much of a difference.DivergencesDivergence forms when the MACD line moves away from the price line of the stock. Bullish divergence are formed when a stock’s price records a lower low and the MACD hits a higher low. The lower low for the stock confirms the downtrend, but the higher low for the MACD line shows less downward momentum. Downside momentum still outpaces the upward momentum as long as the MACD remains negative. When the downward momentum slows, it can foreshadows a trend change or a upside rally. The next chart uses a Google (GOOG) chart with a bullish divergence for Oct-Nov 2008. Notice that there were clear lower troughs as both Google’s price line and its MACD line bounced in October and late November. Notice that the MACD line formed a higher low as Google’s price line formed a lower low in November. MACD is signalling a bullish divergence as the signal line crosses over in early December. Google’s price line confirmed the reversal with a breakout.A bearish divergence forms when a stock price records a higher high and the MACD line forms a lower high as the faster MA crosses the slower MA. The higher high for the stock price is quite normal for uptrends but when the MACD shows a lower high, this illustrates less upside momentum. Even though upside momentum may have declined, upward momentum is still out performing downside momentum as long as MACD is positive. Declining MACD upward trends can foreshadow a trend reversal or forecast a large price decline. Below we see a chart for Gamestop (GME) with a large MACD bearish divergence from Aug to Oct. The stock chart demonstrates a higher high above 28, but the MACD line falls short of the previous high and shows a lower high. The following MACD crossover is bearish. On the GME price chart, notice how the support is broken and turned into resistance on the following bounce in Nov as we see with the red dotted line. This momentary price bump provided another chance to sell or sell short.We should be careful interpreting a MACD divergences. Bearish divergences are quite common for strong uptrends as do bullish divergences during a strong downtrend. Price uptrends quite often begin with a strong advance which will produce strong upside momentum for MACD. Even though we can see that the uptrend continues, it continues at a slower pace than started the uptrend which causes the MACD to decline. Even when upside momentum is not as strong, upside momentum still outpacing the downside momentum as long as the MACD line is above zero. We can see the opposite occuring when a strong downtrend begins. The next chart shows SPY which is the S&P 500 ETF. This chart shows four bearish divergences from Aug to Nov 2009. Despite the slower upside momentum, SPY’s price line continued higher because the uptrend was strong. Notice how SPY’s price continues a series of higher highs as well as higher lows. Remember, as long as MACD is positive the upside momentum is stronger than downside momentum.ConclusionsMACD is a special indicator as it brings together both momentum and trend in one technical indicator. This unique combination of trend and momentum can be used with daily, weekly and monthly charts. The standard moving average lines for MACD use the difference between the 12 and 26-period EMAs. Chartists that are looking for a more responsive indicator can use a shorter short-term moving average and a longer long-term moving average. A MACD(5,35,5) is far more responsive than the more standard MACD(12,26,9) and can be a better indicator for weekly charts. Chartists looking for a less sensitivity indicator can use lengthening the moving averages. A less responsive MACD will still oscillate above/below zero but the frequency of the crossovers centerline and signal line crossovers will decline. Finally, remember that MACD is calculated using the difference between two moving averages. This means that the MACD line is dependent on the price of the stock. For example, the MACD line for a $20 stock may move from -1.5 to 1.5 while the MACD line for a more expensive $100 stock can move from -10 to +10. You cannot compare the MACD charts for several stocks with far different prices. If you want to compare the momentum of various stocks you should probably use the Percentage Price Oscillator (PPO) rather than MACD.
The main target for any trader is to make a profit when given the opportunity and the same applies to the traders of the foreign exchange market. The trader earns money utilizing the forex market. Forex trading is basically simple buying or selling of currency pairs or purchasing that track the movement of specific currency pairs. The currency pairs usually consists of two prices, quoted as a ask price and a bid price. A trader can earn money by bidding the right price and selling at the right price.As in any other market the forex market is also governed by many factors ranging from economic conditions, political scenarios and market psychology. A knowledgeable trader knows how to earn money by following certain trends, understanding technical analysis, predicting the market movement and invest or sell based on the information.One important aspect to remember is that as in share market, it is better to think of a long term investment. Trade with a higher time frame and earn better profits! Forex is not easy money or a Get-Rich Quick Scheme. Forex trading is a disciplined emotion free trading, with emphasis on long term, well researched money management.All the forex brokerage firms provide forex trade signals, analysis of various markets and forex news to the trader. The forex trade signals gives clear indications on what the traders need s to do to make a profit while the forex technical analysis gives in-depth analysis of the movement of prices over a period of time, thus giving a prediction based on past history. It also gives trends of various markets like oil, and precious metals etc. which in turn affects the performance of the forex market. Keeping a track of the forex technical analysis is essential to ensure that the market trends are followed, which in turn ensures wise decision making during investment and choice of lot size.The forex technical analysis follows the rules of statistics and is normally depicted with various forms of chart, may it be line, bar or candlestick. The data collected would range from daily to weekly closing price which is then depicted in a line chart, to show the general movement of the price over a time frame. The bar chart shows both the opening and closing prices along with the high and the low prices over a time frame. The bar chart used in the technical analysis is very specific the top of the bar indicates the highest price paid, while the bottom indicates the lowest price paid. A horizontal left hash indicates the opening price and a horizontal right hash indicates the closing price while the whole bar chart indicates the complete range over the time period selected. The candlestick chart is in many ways similar to the bar chart.Another important source that a trader needs to keep track of is the forex news. The forex news is important as it provides the existent conditions of the market along with analysis of the market. The forex news gives a worldwide view of the economic conditions, political atmospheres and even provides analysis of the market sentiments on that particular day.The news gathers information from all forex markets and presents it in a consolidated form for a trader to decide on the investments.Any trader should ensure to have knowledge of both technical as well as fundamental analysis, and then trade in the forex market. It is better to be cautious. In forex trading, it is important to pick the correct trading method and have a perfect trading planning. Another precaution would be, not to use full leverage plan and to have clear money management with profit and stop loss plan according to the investment.While the forex technical analysis can give a picture on how the prices may move based on historical data, the forex news gives a real time view of the events happening at the moment. A wise trader uses the information gained from all sources to buy or sell in the forex market and thus makes money in the forex market.
Endless possibility for the women tradersElectronic trading has changed the industry. Gone are the days of crowded open outcry trading floors, and men in rolled-sleeve shirts shouting market prices across a noisy office and buy/sell orders down an oversized telephone. These have all but been replaced with sophisticated technology that monitors prices and executes trades within split seconds, at the click of a button. The vast retail trader’s community can easily access the online trading world regardless of the geographical location due to advancement in technology.Brokers have made use of the technology to offer their clients easy access to markets through their online platforms, bypassing the need for professional assistance. Now, almost anyone, almost anywhere, can open an account and place trades, providing they have a computing device that can access the internet. Most importantly you can easily trade the market with very minimum deposit and make a sequential profit by using the leverage efficiently.This has provided more opportunities for women to get into trading, and the results are revealing.It is well documented that the trading industry is still very much dominated by men, with just one female in every ten online traders in the UK and many more reports of gender imbalance in the professional trading sector. However, does this necessarily mean that men are better traders than women? Research would suggest that the contrary could be true: as more women enter the arena, growing evidence is mounting that indicates women could be the better traders. An analysis of the evidenceIn their 2001 paper, behavioral economists Terrance Odean and Brad Barber found that men traded almost twice as much as women and that this aggressive trading behavior led them to drop 2.65% in net returns per year, compared with just a 1.76% drop demonstrated by women.Peter Swan, a professor of Finance at UNSW Sydney, and his colleagues, Lu and Westerholm, conducted an extensive study over a 17 year period on traders from Finland which thoroughly evaluated the trading performance of men and women. Again, the study demonstrated that men traded more actively, but that women were more successful in their trading strategies, adopting a calmer approach to trading, and picking up on movement patterns in the markets better than men. The 2017 paper asserts that women demonstrate greater trading intuition. Although they suffered short-term losses, buying when prices were falling, they made substantial and superior profits over the longer term.This notion is further supported by research carried out by a financial profiling company, Financial Skills. The study analyzed data collected from 326 investment bank interns that traded on the Financial Skills simulation software and found that women traded less and outperformed men.A study conducted by SigFig, an automated portfolio tracker, found that women returned 12% more than men and that women were 25% less likely to lose money on trades than men.Female trading preferencesMuch of the evidence suggests that overall, women take less risks in their trading strategy as they are more likely to take their time and not react hastily to price fluctuations. Indeed, there is much research that supports the notion that women are more risk averse than men.That said, they have been shown to demonstrate a preference for trading riskier financial instruments. In their report ‘The Modern Trader‘, Brokernotes.co profiled traders using the data from more than half a million website visitors. They found that Forex trading, day trading, and CFD trading were amongst the trading styles favored by women. They also found that nearly 42% of women classed themselves as experienced – a high proportion for such an under-represented gender. Women in tradingA 2016 study by Adams, Barber and Odean attempted to answer why only 18% Chartered Financial Analyst (CFA) members were women. Their survey showed that the female members were more achievement driven, and less motivated by traditional family life. Their study suggests that fewer women may be found in demanding professional financial roles as time obligations outside of work still tend to be greater for women.Although there may be some truth in that for professional traders, many private traders are able to conduct trades around their commitments. Jane, who was featured in a BBC documentary about trading, worked as a nurse and looked after her three children, but despite being far from the stereotypical City trader, is a prime example of how women are entering the trading arena. Online platforms that can be accessed from mobile phones have facilitated the ability for traders to engage in the activity around their other tasks, increasing the appeal for women.Primary conclusions regarding female tradersSome of the primary reasons that have been observed in many of these studies are:1. Women appear to have a calmer approach to trading than men and are not as easily influenced by the hype and euphoria of fast moving markets.2. Women are less inclined towards risk taking, preferring to trade less and trade more carefully. Men, on the other hand, often trade aggressively, which can be detrimental to their performance and incur higher brokerage costs – adding to their losses.3. Women are more intuitive with their trades and are better at picking up movement trends and market patterns.Some of the leading hedge fund management companies are trying to redress the balance between men and women in their prominent roles and are actively seeking women to join the company at an early age. It is certainly clear from the wealth of research into this area why firms would want to recruit more women onto their teams.Of course, there are always issues with regards to definitively declaring that one gender is superior to the other. However, there are so many studies that support the case for women being the better traders, and very few in comparison to support the opposite conclusion. It is possible that this is due in part to our pre historic hard-wiring, but there are clearly lessons that can be learned by everyone. Anyone involved in Forex / CFD and other financial instruments trading can benefit from understanding why women repeatedly come out on top in such studies and try to adopt a similar approach.