The European Union has published new regulations applying to retail Forex, CFD, and the few remaining binary options brokerages in its territory. If you have an account with one such brokerage, the regulations will affect you when they come into force during the late spring and summer. This article will outline how the new regulations will impact your bottom line.
Details of the New ESMA Regulations
In March 2018, the European Securities and Markets Authority (ESMA), the financial regulator and supervisor of the European Union, announced new regulations concerning the provision of contracts for differences (CFDs) and binary options to retail investors. It is unclear exactly when the regulations will come into force, but some time in May or June 2018 looks to be the most likely date, and Forex and CFD brokerages located within the European Union (including the United Kingdom, for the time being) will be forced to comply. The regulations will need to be renewed by ESMA every three months to remain in force over the long term.
The regulation concerning binary options is very simple: they may not be sold. In simple terms, this is the end of binary options as a product sold from within the European Union.
The regulations concerning CFDs are more complex but still relatively straightforward. Firstly, there is some confusion as to what exactly is a CFD, with many traders thinking that spot Forex is not considered a CFD and will therefore be exempt from the new regulations. They are wrong: spot Forex is technically defined as a CFD. In fact, every asset you see available for trading at Forex / CFD brokers will most likely be subject to the new regulations.
The new regulations will implement the following changes for retail client accounts (more on who is a retail client; later).
-
The maximum leverage which can be offered will be 30 to 1. That will apply to major currency pairs such as EUR/USD, GBP/USD, USD/JPY, etc.
-
Other currency pairs, major equity indices, and gold will be subject to a maximum leverage of 20 to 1.
-
Individual equities cannot be offered with leverage greater than 5 to 1.
-
Cryptocurrencies are subject to a maximum leverage of 2 to 1.
-
Brokers will be required to provide negative balance protection, meaning it will be impossible to lose more money than you deposit.
-
Brokers will be required to close a clients open positions when the account equity reaches 50% of the required minimum margin by all open positions. This ;margin call; provision can be tricky to understand, so will be explained in more detail later.
-
Bonuses or any other form of trading incentives may not be offered.
-
Brokers will be required to display a standardized risk warning which will include the percentage of their clients who lose money over a defined period.
Understanding the ;Margin Call; Regulation
The best way to understand the 50% margin call provision is to use an example. Imagine a client opens an account with a Forex broker, depositing ;100 in total. The client opens a short trade in EUR/USD, by going short one mini-lot (one tenth of a full lot). One full lot of EUR/USD is worth ;10,000, meaning one mini-lot is worth ;1,000. To find out the minimum margin required to support that trade, we divide the size of the trade (;1,000) by 30, which comes to ;33.33. This is the minimum required margin to maintain the trade. Half of that amount is ;16.67. Now assume the trade goes against the client, with the price of EUR/USD rising above the entry price. As soon as the price rises far enough to produce a floating loss of ;83.33 (;100 - ;16.67), the broker must close the trade out, even if the trade has no stop loss or has not yet reached the stop loss. In theory, this means that a client;s account can never reach zero. Examples involving multiple open trades will be more complex, but will operate according to the same principles.
What Will This Mean for Traders?
The regulations will only apply to ;retail clients;, so you might try to apply to be classed as a professional trader. To get a broker to classify you as anything other than a retail client, you will have to show you have financial qualifications, a large amount of liquid assets, plenty of experience trading, and usually that you also trade frequently. Most traders will be unable to qualify, although it is worth noting that one London-based brokerage, IG Group, has stated that their proportion of clients now classified as recently increased from 5% to 15% of their total customers.
The major impact these regulations will have on traders is simple ndash; the maximum trade size they can possibly make at brokers regulated in the European Union will shrink. Many will say that the maximum leverage limits still offer far more than any trader could need, and I agree. I am wary of leverage and I hate to see anyone using leverage greater than 3 to 1 for Forex under any conditions, or any leverage at all for stocks and cryptocurrencies. Commodities can also fluctuate wildly in value. Too many people forget that the biggest danger in leverage is not overly large position sizing, it is that a ldquo;black swan rdquo; event such as the CHF flash crash of 2015 could happen and wipe out your account through huge price slippage. However, there is another factor that is widely forgotten: why assume that a trader rsquo;s account at one Forex broker is all the money they have in the world? For example, a trader might have $10,000 in the bank. If they deposit $1,000 at a broker offering maximum leverage of 300 to 1, they can trade up to $300,000. At a leverage limit of 30 to 1, that trader will have to deposit their entire $10,000 fund to trade at the same size. In a real sense, that trader might now have to take on more risk to operate in the same way, because if the broker goes bust, while beforehand they might lose $1,000 now they could lose $10,000! Even without negative balance protection, that broker would still have to come after them to try to get an extra $9,000 which they theoretically risk. Yet we saw after the CHF crash that brokers don rsquo;t come after every single client whose losses exceeded their deposit, due to legal costs and reputational issues. This shows that although the stated purpose of the regulation is to protect traders from excessive losses, the story is not as simple as you may think.
Beyond having to deposit more margin, and automatic margin calls, the other major change for traders will be that they will enjoy negative balance protection. This is a positive development which hopefully will make brokerages focus more heavily on the risks they are taking with their business model in the market. At the same time, a possible side effect of the new regulation is the potential increase in average deposits, leading to brokerages being more stable and better capitalized with client funds. Two final notes: brokerages will have to report on their websites the percentages of clients who are losing and making money, although the period over which the statistics must refer to is currently not clear. This will help to shed light on the debate over what percentage of retail traders are profitable, although some brokerages have already released what they claim to be accurate statistics showing that clients with larger account sizes tend to perform better as traders. Additionally, bonuses and promotions will be banned. I welcome this, as not only do they trivialize the serious business of trading, they are almost always a trick offering the illusion of free money whilst preventing traders from withdrawing any profits until a large number of trades are made (read the fine print the next time you squo;).
What If Yoursquo;re Not Happy Remaining in the EU?
Traders with accounts at affected brokers who cannot obtain professional status classification and feel they really need higher leverage than the ESMA limits outlined above might look for a solution by opening accounts with brokers outside the European Union. The most obvious destination would be Australia or New Zealand, where it will still be possible to find reasonably well-regulated Forex brokerages offering leverage in the range of 400 to 1. A recent development that is not talked about much is the growing difficulty of transferring funds to and from Forex brokerages in less tightly regulated jurisdictions. You might decide to open an account with a brokerage in Vanuatu, but you may find that a bank within the European Union might just refuse to send your money there for a deposit. This means that going far offshore, depending upon where you live, may not be a feasible option. In any case, the new regule impossible to live with, and overall there is a compelling case that they are a net benefit to any trader, so why migrate?
How to Profit from Trend Trading | Trading Forex
Retail Forex traders have two things going for them that they can use to grow their trading accounts, both of which can be easily identified by using freely available price charts. The first factor is the trend: locate currency pairs or other instruments that are trending, and trade only those pairs/instruments, in the same direction as the trend. The second factor is picking good trade entry points within those trends. This article will show you how you can succeed at doing both and profit from trend trading.
How to Find Trends
You can find all kinds of complicated indicators to tell you when there is a trend. These indicators are usually based around moving averages or similar indicators. While these indicators can work, most traders use them incorrectly. Worse, they’re not even really necessary! There is a very simple way to determine whether there is a trend and the only tool you need is the ability to count. Just ask yourself: is this currency pair trading HIGHER than it was or LOWER than it was? That’s it! That is all you need. If it is trading higher, there is an upwards trend, and you should look for long trades. If it is trading lower, then there is a downwards trend, and you should look for short trades.As you are probably already asking yourself, trading higher or lower than WHEN? I like to use two filters that have historically worked well, especially with USD and EUR currency pairs: a comparison to historical prices from both three months and six months ago. For example, if I look at USD/JPY, I ask myself whether the price is higher than it was both six months and three months ago, or lower than those historical prices. This tells me whether to look for long or short trades, or to not trade that currency pair at all if the price is somewhere in between.
You can also use this to measure how strong the trends are. For example, if the price is just a tiny little bit higher than its prices from three and six months ago, then technically you have an upwards trend, but it is possibly not a trend you should be be very confident in. The best trends will show a price something like more than 2% away from its price of three months ago, and further still from its price of six months ago.
So by doing this pretty simple analysis on your charts – just by looking at a few different prices – you know which pairs to trade and in what directions. Now it is time to consider how to best pick your trade entries.
How to Pick Trade Entries
The first thing to know is that by only trading in the same direction as solid trends, you have won more than half the battle. Trading with the long-term trend is more important than the exact entry strategy you use. Too often traders focus exclusively on the tricks of entry. Entries are important, but trading with the good trends is more important!The best way to enter trades in Forex is to wait for a pull-back (a move against the trend). Then, enter in the direction of the trend once the price has begun moving in the direction of the trend. This gives better overall results than trading breakouts (overtrading breakouts is another common mistake).
One way to execute this is to wait for the price to make a new 24 hour low in an uptrend, or a new 24 hour high in a downtrend. By definition, these will be pullbacks. One you have that new high or low, wait for the price to turn around back into the direction of the trend and make a new 4 hour high or low. This is your entry trigger. You can place a stop loss order just below the other side of the 4 hour chunk of price. I suggest 4 hours as this seems to work well as a compromise between getting in early enough to have a fairly tight stop most of the time – important for achieving good reward to risk ratios – but late enough for the movement to have been meaningful. Quite often, you will find that better entries tend to be from 4 hour price ranges that are at least as big as the average range of 4 hours of price action.
One important thing to emphasize here is that the entry should be triggered within 4 hours from the initial set-up, otherwise the trade should not be taken. This way, you stick to trades that show some initial momentum. Of course, if the stop loss level is hit before the entry is triggered, you wait for another 4 hour chunk of price to form a reversal back into the trend.
Refining Trade Entries
You should be able to make money just by following this plan or something similar to it. However, as with all rigid systems, there are going to be losing streaks of several trades in a row. You might be able to improve that situation, but it can be a challenge for newer trades. Nevertheless, here are a few tricks that can improve performance:- Some currency pairs are very dead at particular times of day. For example, if you are trading GBP/USD, you will find the best trades usually set up during London business hours.
- You will get better trades if you only take the entry set-ups that are also completing major double or triple top formations, or over and under formations, i.e. set-ups that are confluent with fairly obvious support and resistance. However, if there is a really incredibly strong and “runaway” trend going on, you do not need to worry about that and can just take every entry.
- The best trades tend to go into profit pretty quickly.
Trade Exits
It is best not to try to be too smart about exits. Aim for about twice the risk on each trade. You can either set the target or aim for an obvious support or resistance area which is at about that distance from the trade entry point.Good luck!
Source
How to Profit from Trend Trading | Trading Forex
Retail Forex traders have two things going for them that they can use to grow their trading accounts, both of which can be easily identified by using freely available price charts. The first factor is the trend: locate currency pairs or other instruments that are trending, and trade only those pairs/instruments, in the same direction as the trend. The second factor is picking good trade entry points within those trends. This article will show you how you can succeed at doing both and profit from trend trading.
How to Find Trends
You can find all kinds of complicated indicators to tell you when there is a trend. These indicators are usually based around moving averages or similar indicators. While these indicators can work, most traders use them incorrectly. Worse, they’re not even really necessary! There is a very simple way to determine whether there is a trend and the only tool you need is the ability to count. Just ask yourself: is this currency pair trading HIGHER than it was or LOWER than it was? That’s it! That is all you need. If it is trading higher, there is an upwards trend, and you should look for long trades. If it is trading lower, then there is a downwards trend, and you should look for short trades.As you are probably already asking yourself, trading higher or lower than WHEN? I like to use two filters that have historically worked well, especially with USD and EUR currency pairs: a comparison to historical prices from both three months and six months ago. For example, if I look at USD/JPY, I ask myself whether the price is higher than it was both six months and three months ago, or lower than those historical prices. This tells me whether to look for long or short trades, or to not trade that currency pair at all if the price is somewhere in between.
You can also use this to measure how strong the trends are. For example, if the price is just a tiny little bit higher than its prices from three and six months ago, then technically you have an upwards trend, but it is possibly not a trend you should be be very confident in. The best trends will show a price something like more than 2% away from its price of three months ago, and further still from its price of six months ago.
So by doing this pretty simple analysis on your charts – just by looking at a few different prices – you know which pairs to trade and in what directions. Now it is time to consider how to best pick your trade entries.
How to Pick Trade Entries
The first thing to know is that by only trading in the same direction as solid trends, you have won more than half the battle. Trading with the long-term trend is more important than the exact entry strategy you use. Too often traders focus exclusively on the tricks of entry. Entries are important, but trading with the good trends is more important!The best way to enter trades in Forex is to wait for a pull-back (a move against the trend). Then, enter in the direction of the trend once the price has begun moving in the direction of the trend. This gives better overall results than trading breakouts (overtrading breakouts is another common mistake).
One way to execute this is to wait for the price to make a new 24 hour low in an uptrend, or a new 24 hour high in a downtrend. By definition, these will be pullbacks. One you have that new high or low, wait for the price to turn around back into the direction of the trend and make a new 4 hour high or low. This is your entry trigger. You can place a stop loss order just below the other side of the 4 hour chunk of price. I suggest 4 hours as this seems to work well as a compromise between getting in early enough to have a fairly tight stop most of the time – important for achieving good reward to risk ratios – but late enough for the movement to have been meaningful. Quite often, you will find that better entries tend to be from 4 hour price ranges that are at least as big as the average range of 4 hours of price action.
One important thing to emphasize here is that the entry should be triggered within 4 hours from the initial set-up, otherwise the trade should not be taken. This way, you stick to trades that show some initial momentum. Of course, if the stop loss level is hit before the entry is triggered, you wait for another 4 hour chunk of price to form a reversal back into the trend.
Refining Trade Entries
You should be able to make money just by following this plan or something similar to it. However, as with all rigid systems, there are going to be losing streaks of several trades in a row. You might be able to improve that situation, but it can be a challenge for newer trades. Nevertheless, here are a few tricks that can improve performance:- Some currency pairs are very dead at particular times of day. For example, if you are trading GBP/USD, you will find the best trades usually set up during London business hours.
- You will get better trades if you only take the entry set-ups that are also completing major double or triple top formations, or over and under formations, i.e. set-ups that are confluent with fairly obvious support and resistance. However, if there is a really incredibly strong and “runaway” trend going on, you do not need to worry about that and can just take every entry.
- The best trades tend to go into profit pretty quickly.
Trade Exits
It is best not to try to be too smart about exits. Aim for about twice the risk on each trade. You can either set the target or aim for an obvious support or resistance area which is at about that distance from the trade entry point.Good luck!
Source
How to Profit from Trend Trading | Trading Forex
Retail Forex traders have two things going for them that they can use to grow their trading accounts, both of which can be easily identified by using freely available price charts. The first factor is the trend: locate currency pairs or other instruments that are trending, and trade only those pairs/instruments, in the same direction as the trend. The second factor is picking good trade entry points within those trends. This article will show you how you can succeed at doing both and profit from trend trading.
How to Find Trends
You can find all kinds of complicated indicators to tell you when there is a trend. These indicators are usually based around moving averages or similar indicators. While these indicators can work, most traders use them incorrectly. Worse, they’re not even really necessary! There is a very simple way to determine whether there is a trend and the only tool you need is the ability to count. Just ask yourself: is this currency pair trading HIGHER than it was or LOWER than it was? That’s it! That is all you need. If it is trading higher, there is an upwards trend, and you should look for long trades. If it is trading lower, then there is a downwards trend, and you should look for short trades.As you are probably already asking yourself, trading higher or lower than WHEN? I like to use two filters that have historically worked well, especially with USD and EUR currency pairs: a comparison to historical prices from both three months and six months ago. For example, if I look at USD/JPY, I ask myself whether the price is higher than it was both six months and three months ago, or lower than those historical prices. This tells me whether to look for long or short trades, or to not trade that currency pair at all if the price is somewhere in between.
You can also use this to measure how strong the trends are. For example, if the price is just a tiny little bit higher than its prices from three and six months ago, then technically you have an upwards trend, but it is possibly not a trend you should be be very confident in. The best trends will show a price something like more than 2% away from its price of three months ago, and further still from its price of six months ago.
So by doing this pretty simple analysis on your charts – just by looking at a few different prices – you know which pairs to trade and in what directions. Now it is time to consider how to best pick your trade entries.
How to Pick Trade Entries
The first thing to know is that by only trading in the same direction as solid trends, you have won more than half the battle. Trading with the long-term trend is more important than the exact entry strategy you use. Too often traders focus exclusively on the tricks of entry. Entries are important, but trading with the good trends is more important!The best way to enter trades in Forex is to wait for a pull-back (a move against the trend). Then, enter in the direction of the trend once the price has begun moving in the direction of the trend. This gives better overall results than trading breakouts (overtrading breakouts is another common mistake).
One way to execute this is to wait for the price to make a new 24 hour low in an uptrend, or a new 24 hour high in a downtrend. By definition, these will be pullbacks. One you have that new high or low, wait for the price to turn around back into the direction of the trend and make a new 4 hour high or low. This is your entry trigger. You can place a stop loss order just below the other side of the 4 hour chunk of price. I suggest 4 hours as this seems to work well as a compromise between getting in early enough to have a fairly tight stop most of the time – important for achieving good reward to risk ratios – but late enough for the movement to have been meaningful. Quite often, you will find that better entries tend to be from 4 hour price ranges that are at least as big as the average range of 4 hours of price action.
One important thing to emphasize here is that the entry should be triggered within 4 hours from the initial set-up, otherwise the trade should not be taken. This way, you stick to trades that show some initial momentum. Of course, if the stop loss level is hit before the entry is triggered, you wait for another 4 hour chunk of price to form a reversal back into the trend.
Refining Trade Entries
You should be able to make money just by following this plan or something similar to it. However, as with all rigid systems, there are going to be losing streaks of several trades in a row. You might be able to improve that situation, but it can be a challenge for newer trades. Nevertheless, here are a few tricks that can improve performance:- Some currency pairs are very dead at particular times of day. For example, if you are trading GBP/USD, you will find the best trades usually set up during London business hours.
- You will get better trades if you only take the entry set-ups that are also completing major double or triple top formations, or over and under formations, i.e. set-ups that are confluent with fairly obvious support and resistance. However, if there is a really incredibly strong and “runaway” trend going on, you do not need to worry about that and can just take every entry.
- The best trades tend to go into profit pretty quickly.
Trade Exits
It is best not to try to be too smart about exits. Aim for about twice the risk on each trade. You can either set the target or aim for an obvious support or resistance area which is at about that distance from the trade entry point.Good luck!
Source
How to Profit from Trend Trading | Trading Forex
Retail Forex traders have two things going for them that they can use to grow their trading accounts, both of which can be easily identified by using freely available price charts. The first factor is the trend: locate currency pairs or other instruments that are trending, and trade only those pairs/instruments, in the same direction as the trend. The second factor is picking good trade entry points within those trends. This article will show you how you can succeed at doing both and profit from trend trading.
How to Find Trends
You can find all kinds of complicated indicators to tell you when there is a trend. These indicators are usually based around moving averages or similar indicators. While these indicators can work, most traders use them incorrectly. Worse, they’re not even really necessary! There is a very simple way to determine whether there is a trend and the only tool you need is the ability to count. Just ask yourself: is this currency pair trading HIGHER than it was or LOWER than it was? That’s it! That is all you need. If it is trading higher, there is an upwards trend, and you should look for long trades. If it is trading lower, then there is a downwards trend, and you should look for short trades.As you are probably already asking yourself, trading higher or lower than WHEN? I like to use two filters that have historically worked well, especially with USD and EUR currency pairs: a comparison to historical prices from both three months and six months ago. For example, if I look at USD/JPY, I ask myself whether the price is higher than it was both six months and three months ago, or lower than those historical prices. This tells me whether to look for long or short trades, or to not trade that currency pair at all if the price is somewhere in between.
You can also use this to measure how strong the trends are. For example, if the price is just a tiny little bit higher than its prices from three and six months ago, then technically you have an upwards trend, but it is possibly not a trend you should be be very confident in. The best trends will show a price something like more than 2% away from its price of three months ago, and further still from its price of six months ago.
So by doing this pretty simple analysis on your charts – just by looking at a few different prices – you know which pairs to trade and in what directions. Now it is time to consider how to best pick your trade entries.
How to Pick Trade Entries
The first thing to know is that by only trading in the same direction as solid trends, you have won more than half the battle. Trading with the long-term trend is more important than the exact entry strategy you use. Too often traders focus exclusively on the tricks of entry. Entries are important, but trading with the good trends is more important!The best way to enter trades in Forex is to wait for a pull-back (a move against the trend). Then, enter in the direction of the trend once the price has begun moving in the direction of the trend. This gives better overall results than trading breakouts (overtrading breakouts is another common mistake).
One way to execute this is to wait for the price to make a new 24 hour low in an uptrend, or a new 24 hour high in a downtrend. By definition, these will be pullbacks. One you have that new high or low, wait for the price to turn around back into the direction of the trend and make a new 4 hour high or low. This is your entry trigger. You can place a stop loss order just below the other side of the 4 hour chunk of price. I suggest 4 hours as this seems to work well as a compromise between getting in early enough to have a fairly tight stop most of the time – important for achieving good reward to risk ratios – but late enough for the movement to have been meaningful. Quite often, you will find that better entries tend to be from 4 hour price ranges that are at least as big as the average range of 4 hours of price action.
One important thing to emphasize here is that the entry should be triggered within 4 hours from the initial set-up, otherwise the trade should not be taken. This way, you stick to trades that show some initial momentum. Of course, if the stop loss level is hit before the entry is triggered, you wait for another 4 hour chunk of price to form a reversal back into the trend.
Refining Trade Entries
You should be able to make money just by following this plan or something similar to it. However, as with all rigid systems, there are going to be losing streaks of several trades in a row. You might be able to improve that situation, but it can be a challenge for newer trades. Nevertheless, here are a few tricks that can improve performance:- Some currency pairs are very dead at particular times of day. For example, if you are trading GBP/USD, you will find the best trades usually set up during London business hours.
- You will get better trades if you only take the entry set-ups that are also completing major double or triple top formations, or over and under formations, i.e. set-ups that are confluent with fairly obvious support and resistance. However, if there is a really incredibly strong and “runaway” trend going on, you do not need to worry about that and can just take every entry.
- The best trades tend to go into profit pretty quickly.
Trade Exits
It is best not to try to be too smart about exits. Aim for about twice the risk on each trade. You can either set the target or aim for an obvious support or resistance area which is at about that distance from the trade entry point.Good luck!
Source
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