Article - USD value speculation

If currency market speculators thrive on anything it is either good news or bad news. No news means no price movement. Buy the rumor sell the fact. Arbs thrive on the need for instant success. Stocks and bond markets are full of Arbs trying to look for pricing anomalies. The differential on the news becomes the profit spread. Reality or fiction large specs are glued to their Reuters screens to push or play contrarily given the event and given a wide experience of human emotion and where a drama can lead prices. In the currency markets the currency option can be seen as a powerful tool to enter into a position. Options for currencies are seen as a strong representation of the market's expectation of the future distribution of spot currency values.

A good example for the present would be the speculators driving the USD in the USDX futures market from the current 94 level to a possible future 100 mark. For almost 6 months now large currency traders have been buying call options on the USDX on the futures exchange and buying call and put options on the EUR in the OTC derivatives markets in a huge gamble that the EUR has to fall given the slow down of its economy in 2014. With options secured currency traders then have been seen to pick their entry points since August last year, picking their moment to enter positions to short the EUR in the spot market as the debt crisis of Greece dragged on for the last 2 quarters of 2014. But  the eventual agreements on greed in February 2015 have given backers of the USD time to pause for reflection. In USA a pause has come for the moment as currency speculators

witness an inevitable slow-down in growth and take a time out from their spot trading.  Nothing moves in straight lines forever. The world's biggest economy had recently shown signs of a slow down that may reverse currency speculators search for the right momentum indicator to push the US Dollar to a higher value. The US economy grew at an annual pace of 2.2% between October and December 2014, and that is set against an expectation estimate of 2.6%. In the previous quarter the US economy grew at an annual pace of 5%. The slower place was pinned on a slower rise in business inventory investment in the previous quarter.  But still currency analysts are optimistic that consumer confidence remains buoyant and a Dollar push is on the table. Consumer spending, represents about 70% component of economic growth, and is still regarded as being in robust condition. Fed Chair Yellen also keeps her eye on flexibility as the US economy is bound to show signs of a zig and a zag here in it's upward climb in annual GDP growth. Thus we can expect to see currency spec activity in the options market very soon.

Where the Dollar goes next will soon appear in the weeks ahead. Large specs have been waitinjg on the sidelines since the last Jan 16th SNB action with some heavy short covering. The first seeds of truth will lie in the currency options market where options trading for calls and puts can be sought to hedge the next large speculative spot position. Increasing activity in the options market is a  sign of spot activity to ensue. But information on option trading is very hard to ascertain since most bank dealing in currency derivatives is private as such products are not exchange traded products. Many international banks offer dealing capability to large corporates and speculators and often action in the options market is a forerunner to a large speculative position in the spot. Many analysts predict that with Q.E the EUR eventually will slide again and the USD will rise. A currency speculator may then indicate to his dealer a price bid range for OTC put options on the EUR and ask the bank dealer to obtain quotations from other counter-party bank dealers. Once satisfied with a premium price the speculator can then secure the option and then launch into the spot trade. Given that positioning may take months to develop for an eventual push of the EUR down to the 100-105 range it is not a bad idea to look at forward 6 - 12 months of time value in 2015 to expiration to allow the currency spec to develop a strategy and the necessary time frame for spot and futures accumulated position.

For FX Options trading on Futures products offered by the CME please read the CME handbook here http://www.cmegroup.com/trading/fx/fx-options-traders-handbook.html  "CME Group FX represents the largest regulated FX marketplace in the world and the second-largest FX platform with more than $100 billion in daily liquidity."

It is certainly interesting that several retail trade platforms have now started to offer to the retail customer the right to access FX options to hedge their trades and that is most certainly a welcome development. For far too long the retail forex markets have been offering platforms for spot trading to retail customers without an adequate open discussion of the need for hedging. One such retail broker that is offering a successful platform for call and put option trading is IQ Option which maybe found at the website  https://iqoption.com/promo/charts-v2_en/?aff=3946&afftrack=1902     

Thus for the smaller retail trader wanting to capitalize on the next Dollar move spot trading with stop losses can be supplemented with a hedge that can minimize risk. a smaller trader can now turn to an options provider to look for quotations ie. should a trader want to short EUR in the spot market he now has recourse to buy a call option on the EUR to balance his short spot entry trade in case of a reversal and stop loss. The development of readily accessible options trading on forex platforms is encouraging for the novice trader to graft his trading career over a longer period of time.


Pieter Bergli - DeLoren Trust Holdings

Forex education - Forex market eductation

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CFTC RULE 4.41 - HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.

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