By Forex Fraud:

Forex options can be exceptionally useful for a forex trader, but there’s no single way of using them in trading. You can use them as a kind of hedging mechanism, or to reduce the overall exposure of your account to a currency pair. You may use them to limit your downside. And you may use them for purposes unrelated to trading itself, as indicators of market sentiment and positioning, for completing the spot market data depicted by the forex trading software. But whatever you do with them, you’ll eventually find that implied volatility is one of the most important concepts that you should be knowledgeable about in order to make use of options.

Options pricing is a complex subject, and requires a degree of familiarity with derivatives, and calculus in general. But there is one simple fact about options that is easily understood and useful for trader’s purposes: it is that of all the items that contribute to the establishment of an option’s price according to the most common and popular models, implied volatility is the only one that is a prediction. All the other factors, such as the strike price, interest rates, and the term of the option are well-known at the moment the contract is written, but volatility is not, and that is why it is so important in any options pricing strategy.

IV (as implied volatility is often termed by market practitioners), is simply the estimate inherent in a option contract about the future volatility of the underlying. Let’s assume, for example, that there are two option contracts with exactly the same expiry data, and payout, but very different prices: the justification for this divergence is to be sought in volatility. Simply stated, a higher volatility will result in a higher likelihood of the strike price being hit, and will as such command a higher premium. If a trader expects volatility to be higher, he’ll be willing to pay the higher premium, and vice versa.

Implied volatility is an exceptionally important subject in options analysis, but it is also relevant for forex traders as well. Rising implied volatility over a theoretical continuation of the historic volatility, for instance, suggest that options traders are on the whole convinced that the market may keep driving the trend higher. Conversely, falling volatility may imply that a period of consolidation in a currency pair may ensue, possibly preceding a reversal.

Volatility is examined and studied by traders for a wide variety of strategies, and also for hedging purposes. The volatility smile, delta hedging, convexity, are some of the concepts that are intimately related to volatility, and can be exploited by forex traders for spot trading purposes.

So get your forex demo account, and try to test some of the assumptions of the options market in trading. Soon you too will have your own toolbox of great strategies based on the dynamics of the vast options market.

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By Downtown Forex – June 25th – Just launched today! Check out our “Expert Advisor” section for over 2700 indicators, free for download. Check back in the next couple of days for our library of expert advisors.

BY FOREXMAGNATES -

This is the first in a 5-part series on MetaQuotes upcoming release of the MetaTrader 5 trading platform.  The new MT5 platform is not an upgrade of MT4 but rather an entirely new client terminal, written from scratch.   MT5 will feature:

• 5 order types and 4 execution modes available for trading
• Implements practically any trading strategies
• Built-in reports on all trading activities
• Built-in indicators and graphical objects
• Allows quicker analysis of quotes and trade decision making
• 3 chart-types, 21 timeframes and over 70 analytical tools
• High performance and outstanding speed
• Strategy tester MetaTrader 5

This week I will try to give some insight into what these features really are and how they might impact your trading.

Up first, the new Depth of Market (DOM) feature. What DOM affords a stock trader is a view of current market activity for a particular stock.  Market depth information is generally not available for retail Forex traders because their is no central exchange from which to derive the data.  The best a Forex broker can do is provide a mechanism to show a consolidated view of available orders from their liquidity providers. A small broker, for example, with only one liquidity provider is more restricted in what they can offer a trader.  Since their pool of orders is smaller, the trader may not get an order filled at the price requested.  A broker with more liquidity providers will have a larger pool of orders from which to match a trader’s order and trading generally runs smoother.  Fewer requotes and less slippage.

Tradeview Forex’s Platinum trading platform offers DOM information, but market depth data has been generally unavailable to retail traders up to this point.  MT5 will change all that.  Here’s an example of how it might help you as a retail trader.

Let’s say, for example, that you want to place a buy order for 1 lot EUR/USD and the market depth window on the platform indicates that, on the buy side, there are 10 lots available at 1.4000.  Knowing this information, you can feel assured that your request to trade 1 lot can be guaranteed an immediately filled at 1.4000.  There’s no requote and no slippage.  You should then see the DOM window reflect the change in buy-side order availability.  With your current MT4 broker, and no market depth information, the retail trader really has no idea of what the market conditions really are other than what is evident from analyzing the trading chart.

Access to market depth information can take a lot of anxiety out of the trading environment and potentially change a lot of traders’ strategies.

In part two, I’ll try to shed some light on MT5’s 21 timeframes and how this feature could make a big difference in your trading.

Originally Posted on Forex Magnates

BY ADAM HEWISON -

There is an indicator which has been around since 1957. It has accurately forecasted every inflationary and deflationary cycle since.

This is my number one indicator for large cyclic trends. You may want to watch this index carefully should you want to invest in certain stocks and commodity related markets.

Over the last half-century, this index has seen some remarkable moves both on the upside and more recently on the downside. I believe that this is the indicator that everyone should watch. If you trade stocks or futures and are interested in world trade trends, this is the indicator to track.

The tenth revision of this index renamed it the Reuters-Jefferies CRB Index (NYBOT_CR) You can easily track this indicator everyday using MarketClub.

You can learn more about this index from our Trader’s Blog
Here is a list of the 19 markets that are included in the RJ/CRB index as implemented in the 2005 revision:

Metals: aluminum, copper, gold, nickel, silver
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Livestock: lean hogs, live cattle

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Enjoy the video in every success in the markets,

Adam Hewison
President, INO.com
Co-creator, MarketClub

By ForexDistrict- The Dollar and Yen weakened against its major counterparts as Asia stocks gained, spurring demand for higher yielding assets. Higher commodity prices and the strongest gain in Australian consumer confidence in 22 years, helped fuel stocks into positive territory for the first time in three days. Oil and gold prices maintained momentum, reaching above $70 and $960 in Asia, respectively.

Australian consumer sentiment recovered strongly posting a 12.7% jump to 100.1, according to the Westpac Banking Corp. This follows a 4.3% fall previously reported. As global equity markets rose, stabilizing economic data showed strength, and the Australian economy averted a technical recession, optimism among consumers posted the biggest gain in 22 years. Data suggests the RBA may leave rates unchanged in the near future, although they noted, in their previous meeting, that they will act if needed to spur further growth.

AUD/USD rose to as high as 0.8097 from 0.8010, while EUR/USD and GBP/USD rose above 1.41 and 1.64, respectively. The Yen fell against the Dollar rising from a 97.09 low to 97.72, EUR/JPY rose over one big figure from 1.3667 to 137.78.

Looking ahead…

Global trade will be in focus as readings from UK, Canada, and U.S. are set to be reported. Figures should prove imports and exports continue to fall, albeit at a slower pace.

In the European session, UK manufacturing and industrial production will be the key focus with markets expecting production to decline by 0.1%, respectively. The trade balance, which will be released alongside, is anticipated to show a deficit of -6.4B from -6.6B.

Canadian trade balance should report a surplus of 1.0B, while in the U.S., consensus looks at a 28.6B trade deficit. As oil prices continue to outperform, crude oil inventories are starting to have a stronger impact in the market. Last week prices fell on an unexpected build up in inventories and this week markets see a small uptick of 0.1M barrels.

Further, investors will place close attention to the FED’s Beige book of regional economic conditions, as it could provide clues on U.S. interest rates.

By Juan P. Bejarano. Edited by Graciela Gordillo

Technorati Profile
By Fast Brokers – The USD/JPY is turning south from our 3rd tier downtrend line as we notice a Dollar appreciation across the board today.  We haven’t seen any abnormal volume to the upside on the 1-day chart, leading us to believe that the USD/JPY may remain in its steady downtrend.  It would take an aggressive movement to the upside past May highs and our downtrend lines on substantial volume for us to alter our negative outlook on the currency pair.  On the other hand, we do notice some near-term downward pressure on both the GBP/USD and EUR/USD.  If the USD/JPY keeps its new negative correlation with these currency pairs and they weaken from further levels, the USD/JPY could make a push for 100.  However, the correlations between the USD/JPY and these currency pairs are fragile because they exhibited a positive correlation since last September.  It will be very interesting to see how the USD/JPY behaves over the next few trading sessions, and whether the currency pair can piece together some upward momentum.

Meanwhile, investors will keep a close watch on the Core Machinery Orders release from Japan later today.  Core Machinery Orders are forward looking since the purchase of heavy machinery normally indicates an expected increase in production, telling us a lot about Japanese exports and consequently global demand and consumption.  Core Machinery Orders have climbed back to respectable levels since January’s shocking negative number.  Analysts expect an increase of 0.1%, and the release is likely to be a market mover.

Fundamentally, we find resistances of 97.98, 98.66, 99.49, 100.06, and 100.74.  To the downside, we see supports of 97.45, 96.90, 96.33, 95.82, and 95.20.  The 100 level serves as a key psychological barrier with 95 acting as a psychological cushion.  The USD/JPY is currently exchanging at 97.60.

Market Commentary provided by Fast Brokers

“The Wall Street firms that trade directly with the Federal Reserve say speculators betting that interest rates may head higher this year are wrong.

Policy makers will keep the target for overnight loans between banks in a range of zero to 0.25 percent this year, according a survey of 15 of the 16 primary dealers of U.S. government securities that trade with the central bank. A majority predict no increase until at least the second half of 2010. Cantor Fitzgerald & Co. officials weren�t able to immediately provide a forecast.

Yields on two-year Treasury notes surged 44.4 basis points June 5 and 8, the biggest two-day increase since Sept. 18 and 19, and Fed funds futures contracts show a 58 percent probability of a rate increase by November on signs that the economy is bottoming. Implied yields on eurodollar futures, also used to speculate on changes in central bank policy, increased even as the U.S. government said on June 5 that the unemployment rate rose to 9.4 percent, the highest since 1984.”
From Bloomberg, June 9th
____________________________________________

We find this news article quite interesting. Essentially it seems that the biggest dealing desks are at odds with the market participants. So will the “smart money” dealing desks, with their connections to the US Fed, and their quantitative pricing models be correct, or will the markets view win out? Remember that markets are affected by George Soros’ theory of reflexivity, which poses that markets are effected by participants’ actions, thereby effecting the market’s fundamentals.

In this case the “house” (bond dealers) and the “players” market participants are at odds. We will be watching the yield on the 10 year US Treasury Note as it closes in on 4% to see where the line in the sand is drawn by the dealers.

The interest to currency traders is that as longer term interest rates have moved higher, the short term rates controlled by the US Fed stay low. This creates a steepening of the yield curve that implies inflation in the future. That change in the steepness of the yield curve is what has hurt the USD over the last two months. Inflation will erode the value of the USD.

So keep an eye on the yield curve to see if as the yield on 10 year Treasuries closes in on 4%, the market and the US Fed start to raise the short term rates which would lessen the steepness of the yiueld curve. This would be bullish for the USD.

Stay Nimble!

Stephen Leahy
Back Bay FX Services, LLC
www.backbayfx.com

by: Back Bay FX

GBP/JPY has been trading in a range that is well-defined by the 2 hour time frame Bollinger Bands. In the below snapshot, the pair has bounces off the midline and seems to be continuing it’s move higher. Yet that midline is a very important level.

We will use a Buy Limit order to go long GBP/JPY (current bid at 158.15) at 157.70. Our Target Level is just below the top Bollinger Band at 160.10. We will enter a Stop Loss at 157.65 which would indicate a solid break of the midline support level.

Stay Nimble!

Stephen Leahy
Back Bay FX Services, LLC
www.backbayfx.com

Thanks to FX Solutions and Accucharts for the below image.