Forextell - Insights from the institutional side of FX

Forextell.com

Trade Ideas from Pros &

Insights from the banks/hedge funds

Hello traders!

We would like to present you our new FX portal http://www.forextell.com/

The content provided on this site is intended to support individual traders, commentators and analysts. In doing so, we hope to create and maintain a trading and news platform which we ourselves would want to use, and I think we have achieved this. The focus at Forextell will be on trade ideas. We have made every possible effort to find the best traders and their best trade ideas and we have filtered even further to focus on those traders who are getting it right, right now!

We are also keeping our readers updated on flow and order info coming directly from the banks. To make sure everyone can understand the terms used by bank dealers and how to use the information, we have created a FAQ and Glossary, which you can find below.

We are looking forward seeing you on the site and feel free to post any feedback or suggestions.

Forextell on Twitter: https://twitter.com/forextellcom

Happy trading!

The FXWW Team

Forextell FAQ

http://www.forextell.com/faq/

Q: What is order information?
A: Information about active orders in the market. Bids are orders to buy an asset at a specified price lower than the current one, while offers are orders to sell an asset at a certain price above the present one. In FX, which is an over-the-counter market, dealers frequently exchange such kind of information with each other to get an better overview over the order book and general market sentiment. The FX sales team at the banks then passes the information over to the clients, mostly in the form of market commentary sent via email or chat rooms on Bloomberg/Reuters Eikon. We at Forextell use our network of interbank and hedge fund contacts to gather reliable information and provide them to our readers.

Q: How can the order information be used?
A: Order information can be useful for fine-tuning entry or exit points and in certain circumstances even provide a basis for a trade idea. For example, a trader might be long EUR/USD and the trade is running in his favor. However, there are several areas of technical resistance ahead and he is not sure where to take profit. The trader does not want to take profit too early, but doesn’t want to risk seeing price reverse suddenly and eat all his potential profit. To achieve this, he can use order information to determine the most favorable area to take profit. We will note the estimated size of the orders at a certain level if that information has been given from the contacts. For example, we might note that orders are „light“ (meaning relatively small), „decent/good/solid“ (not large, but modest size) or „large/big“.

Another way of using the order information is to determine favorable entry points. Seeing where smart money is trying to accumulate positions will give us a good idea at which levels we should look for our own trade ideas.

Further, the information can be used as a trade idea on itself, but this should be done only in certain circumstances and with a tight stop. The trader must first be able to recognize the current market environment. In volatile market conditions, order information will generally be less reliable and traders will pay much less attention to it. On the other side, a calm environment where we mostly trade in ranges, is a favorable one to make use of the information. Professional traders will watch the order info more closely then and it will have a larger impact. Hence, keep it mind to check the economic calendar, as an important event could lead to thin liquidity. Secondly, if the estimated size of the orders is not known, we at least want to know who is behind the orders. Participants like the Asian Central Banks (ACBs) or the BIS are known as smart money and can in rather quiet markets define the intraday ranges with their orders. If you choose to trade off such information, always use a tight stop and risk a small part of your account balance. To make sure you understand what kind of organizations and people participate in the foreign exchange market, please visit our FX Glossary.

Finally, we want to stress the fact that orders can be cancelled, that their size can change and that they can become irrelevant when an event surprises market participants and volatility suddenly rises. The best way to use this information is as an additional tool to your existing trading strategy and not as a way to trade the markets. Have appropriate risk management rules ready and follow them; if you want to be in the game for the long run, capital protection is your number 1 priority.

Q: What is flow information?
A: Information about current or past flows in the market. Examples are: „ACB currently buying EUR/USD“ or „Hedge funds have been consistent buyers of EUR/JPY during the London session“. Dealers and other institutional traders take note of this, especially after a larger move in the markets. This is less relevant than order info, but can be useful, additional information sometimes.

Q: How can the flow information be used?
A: Flow information can be useful, especially if it mentions short-term market participants like ACBs and CTAs. For example, if we know that CTAs have been consistently momentum buying in e.g. GBP/JPY, we can be fairly sure that in the event of any GBP/JPY-negative event, they will be quick to cover. Combined with information about stop loss orders, we can turn this into a tradeable idea by going short should market sentiment change, targeting the stops of the weak side – the one caught long.

Q: What type of bank research exists?
A: There is:
a) Market commentary written by the dealers or sales staff, focusing on recent macro events and order/flow information
b) Technical research written by the technical analysts, which is mostly medium-term
c) Global macro research written by the analysts, which is is focused on the big picture or an in-depth analysis of a certain region/macro event over a longer timeframe

Q: How can information about stop loss orders be used?
A: Stops are orders to buy above the current market price/sell below the current market price. They are mostly used to close losing positions at a determined exit point. Dealers are paying attention to larger cluster of stop loss orders, as they can attract price. Traders can use this information as exit points – e.g. closing a long positions once the pair takes out the large buy stops above level x.x – or as sign where NOT to place your stop. For example, if you are convinced that being long USD/JPY is the right trade and you wish to keep the position open for several days, you want to make sure that your stop is safe, while still being within a reasonable distance and according to your trading rules.

Let us assume that you bought USD/JPY at 103.30 and it is still trading near that level. Most retail traders would place their stop below 103.00, at 102.95 or 102.90. However, then there is talk of large stops resting through 102.90 and sentiment is a bit mixed at the moment. Short-term sellers or profit-takers may push the pair down and it will eventually trigger the stops. Being aware of this, you do NOT place your stop at 102.95 or such an obvious place, but place it at e.g. 102.75, below the 102.80 bids. If it breaks below there, it might a signal that being long USD/JPY is not favorable at the moment or that the timing is not right.

Forextell Glossary

http://www.forextell.com/glossary/

ACBs (Asian Central Banks)
They tend to recycle their reserves after intervening in the local currency market. For example, if the Bank of Korea sold the domestic currency and bought US dollars, they can then sell the dollars and buy Euros to diversify their reserves. ACBs are known as active jobbers (a trader who trades for small and usually short-term profits in course of a trading session, and who rarely holds positions overnight) and their activities can have quite an impact on markets, especially in low volatility environments.
Ask
The market price at which you can buy a currency
Aussie
Nickname for the Australian Dollar
Barrier Option
An option whose payoff depends on whether or not the underlying asset has reached or exceeded a predetermined price level. There are knock-out options, which expire worthless if the underlying asset exceeds a certain price. For example, the buyer of a 1.37 EUR/USD barrier option will have a profit if price does not reach that level within a specified timeframe. A knock-in barrier has no value until the underlying asset reaches a certain price. For example, the buyer of a 1.65 GBP/USD barrier option will have a profit if price reaches that level. Generally, one side will try to protect the strike price placing orders ahead of it, while the other side will try to push price into the specified level if the current market rate is relatively close. Taking the first example again, the buyer of the 1.37 knock-out will place sell orders ahead of the level while the option seller will try to push price into the level.
Bid
The market price at which you can sell a currency
Bids
Resting limit orders to buy a currency at a specified price (lower than the current one)
Big Figure
Refers normally to the first three digits in an exchange rate (e.g. 1.34, 1.35, 1.36, 1.37…). Interbank traders usually do not mention the big figures as it is assumed clients know them. For example, if a client asks the dealer for a quote in EUR/USD and the pair trades at 1.3550/52, the dealer might say „Bid 50, Ask 52“ instead of „Bid 1.3550, Ask 1.3552)
BIS (Basel name)
Bank of International Settlements; an international organization of central banks through which its members can trade currencies without revealing their identity in the marketplace. If a CB buys a currency through a commercial bank, the dealer can pass on the information and soon most other institutional traders will know that they have bought. Through the BIS, CBs can hide their identity when trading directly or when placing orders in the market. Market participants pay close attention when the BIS is mentioned and short-term players will often try to front-run their orders.
BoC
Bank of Canada
BoE
Bank of England
BoJ
Bank of Japan
BoK
Bank of Korea
BRICS
Term used for the group of largest emerging markets, which includes Brazil, Russia, India, China and South Africa
BuBa
Bundesbank – the German central bank
Bund
German 10 year government bond
Cable
Nickname for the GBP/USD pair
CBR
Central Bank of Russia
Clearer
A term used for large banks. For example, UK clearer refers to one of the larger UK-based banks, i.e. Barclays, Lloyds or RBS.
CME
Chicago Mercantile Exchange
Corporate (Corps)
Corporations mostly trade in the FX market to hedge against currency risk.
Crosses
Currency pairs not involving the US Dollar
CTAs
Commodity Trading Advisors – they trade with money from investors through Managed Futures Accounts and usually apply a mix of aggressive, short-term and trend-following strategies.
Custodian (Custy)
A term used for banks that process cross-border securities trades, keep financial assets safe and services the associated portfolios. An example for a large custodian is HSBC.
DAX
Stock market index consisting of the 30 major German companies trading on the Frankfurt Stock Exchange
Dealers
Market makers at the dealing banks. They earn a profit from the spread (difference between the Bid and the Ask price) and occasional proprietary trading. For example, if a dealer has bought 50 million Euros from a client, he can either get rid of his inventory in the interbank market (selling it immediately) or hold the position and wait for a better price to sell them (speculating).
Doves/Dovish
An economic outlook which generally supports lower interest rates. Doves take the position that lower interest rates are preferable based on current economic conditions.
ECB
European Central Bank
EBS
Electronic Brokerage System – a wholesale electronic trading platform used to trade foreign exchange with market making banks
Exotic currencies
Less liquid and less frequently traded currencies, e.g. the Singapore Dollar or Thai Baht
Fast Money/Hot Money
Short-term speculators that try to profit from rapid price movements using high leverage
Fed
Federal Reserve
Flat
Having no open position; for example, if a trader closed his USD/JPY long position and has no open trade, his positioning is „flat“
FOMC
Federal Open Market Committee
Handle
See term „Big Figure“
Hawk/Hawkish
An economic outlook which generally supports higher interest rates. Hawks take the position that higher interest rates are preferable based on current economic conditions.
Hedge Funds (HFs) – leveraged funds; they are flexible; they can be specialized in a certain asset class (FX only) or trade a variety of markets. Also, they can apply both short-term and long-term strategies at the same time to diversify.

1. Global Macro (Macros) – funds that take sizeable positions in anticipation of global macroeconomic events in order to generate a risk-adjusted return. There are only a handful of really large macro funds, but they can be powerful players in the market, especially if they have the same trade running. For example, long USD/JPY was a very popular trade early 2013 and there was probably not a single macro fund that did not have this position running.
2. Directional – they tend to place directional bets on the prices of underlying assets and are usually highly leveraged.

Interbank Market (Tier 1)
The top-level foreign exchange market where banks trade with each other, either directly or through electronic brokerage platforms such as EBS and Reuters Dealing.
IMF
International Monetary Fund
Kiwi
Nickname for the New Zealand Dollar
Left-Hand Side (LHS)
The left side of a quote, refering to the Bid
Leveraged money/accounts/names
All market participants that use leverage in their trading, e.g. hedge funds and CTAs
Loonie
Nickname for the Canadian Dollar
Middle East Names (ME)
The term often refers to the powerful sovereign wealth funds of oil-rich countries in the Middle East, e.g. Kuwait Investment Authority, Abu Dhabi Investment Authority, Qatar Investment Authority.
Model funds/System funds
An investment fund that uses computer-based models to speculate in the foreign exchange market. They will often buy/sell on momentum, but the strategies applied are not limited to this.
Month End
Fixings related to the adjustments that international portfolio managers need to make to their currency hedges based upon the performance other asset classes they hold positions in. These portfolio managers usually reweigh their portfolios at the end of each month if moves were larger than anticipated.
Names
When market participants mention terms like „US names“, „UK names“, „European names“ etc., they usually refer to a large bank based in the specific country/region.
Offers
Resting limit orders to sell a currency at a specified price (higher than the current one)
NY Cut
Options that expire at 10:00 AM New York time
PBOC
People’s Bank of China
Position Covering
Closing a position; for example a trader who closed his long EUR/USD position has „covered“
Prime Brokers
Hedge funds can gain direct access to the markets by using a banks credit line in exchange for a specified fee
RBA
Reserve Bank of Australia
RBI
Reserve Bank of India
RBNZ
Reserve Bank of New Zealand
Reuters Dealing
An electronic trading platform; main competitor of EBS
Real Money (RM)
Institutional investors that do not use leverage and tend to place medium-term to long-term bets. RM usually refers to large asset managers, like pension funds and mutual funds.
Reserve Manager
Usually refers to the central bank of a specific country
Right-Hand Side (RHS)
The right side of a quote, referring to the Offer
SNB
Swiss National Bank
Sovereign Wealth Funds (SWFs)
State-owned investment funds that invest globally. Most SWFs are funded by revenues from commodity exports or from foreign-exchange reserves held by the central bank.
Squeeze
A situation where market positioning arrived at extreme levels and the crowded side gets squeezed out of their positions. For example, if the market is very short GBP/USD, but there is an event that changes sentiment for the Pound, price will move rapidly and many traders who were short will be forced to cover their positions.
Stops
Stops are often magnetic and targeted by dealers and short-term specs. Stop hunts can also fail and those who have targeted them must be quick to cover then. For example, if there is talk of large stops above 1.36 in EUR/USD, specs will perhaps buy the pair if the current market price is near (30-50 pips). However, if there are large sovereign offers resting ahead of that level, the stop hunt will fail and the specs & dealers will be squeezed out of their positions.
Swissie
Nickname for the USD/CHF pair
Toshin
Japanese investment funds which invest in non-domestic assets and are active participants in the foreign exchange market
Trade Sizes
A million is the standard trading size in the interbank market. If traders say „Sovereign name bought 50 EUR/USD“ they mean that a sovereign name has bought 50 million of EUR/USD. For billions, the term „yard“ is used (see below).
WMR Fixing Rate
WM calculates daily standardized spot and forward rates for global foreign exchange transactions at 16:00 London time, using rates provided by Reuters. These rates are recognized globally as the standard.
Yard
Term used for a billion

Morgan Stanley keeps bullish view on GBP/USD

 

1. UK Manufacturing PMI came in slightly better than expected at 56.9 vs 56.8 f/c
2. The bank notes that this is consistent with the more balanced growth picture coming from the UK

Full story:
http://www.forextell.com/morgan-stan...h-view-gbpusd/

Japanese bank demand keeping USD/JPY bid

Bank dealers are chatting about sizeable bids 101.35-45...

Full story:
http://www.forextell.com/japanese-ba...ng-usdjpy-bid/

NY Noon Wrap-Up

Global stock markets down amid risk aversion; Gold has hit $1355; US 10 YR yield briefly traded sub-2.60 and USD/JPY supported by Japanese bank demand...

Full Story:
http://www.forextell.com/ny-noon-wrap/

EUR/USD bounces, but ACB supply seen pre-1.38

EUR/USD hits fresh intraday high, but ACB supply noted ahead of the 1.38 level

Full story:
http://www.forextell.com/eurusd-boun...seen-pre-1-38/

Improving sentiment lifts EUR/CHF

A shift in risk appetite led to demand from speculators and macro funds, pushing the pair to a fresh intraday high at 1.2175

Full story:
http://www.forextell.com/improving-s...-lifts-eurchf/

USD/JPY hits 102.00 - check out our order book update

Full story:
http://www.forextell.com/usdjpy-stro...owards-101-50/

GBP/USD well-bid after UK PMI beat & ADP miss

Full story:
http://www.forextell.com/cable-well-bid-uk-pmi-beat/

Morgan Stanley Global FX Outlook

A longer term outlook on the FX market from a major US investment bank.

Full story:
http://www.forextell.com/morgan-stan...al-fx-outlook/

US think tank report says SNB may implement negative rates soon

A major US think tank thinks that the Swiss National Bank will soon introduce negative interest rates on commercial banks in order to cool the Swiss property market. EUR/CHF jumped almost up to 1.22, while USD/CHF is struggling to pass above the 0.89 offers.

1.2225 is the next key level to watch for in EUR/CHF.

Full story:
http://www.forextell.com/us-think-ta...ve-rates-soon/

USD/JPY – Large offers on interbank platforms + ACB supply on top

Further gains are likely, but this area might be solid short-term resistance...

Full story:
http://www.forextell.com/usdjpy-larg...cb-supply-top/

Global Macro Summary for the past month

An overview over the key fundamental events and market flows for the last month, via Morgan Stanley.

Full story:
http://www.forextell.com/february-20...flows-summary/

Bank of Canada leaves rates unchanged at 1 %

Summary of the BoC's statement...

Full story:
http://www.forextell.com/bank-canada...s-unchanged-1/

Macro fund and CTA demand takes USD/JPY above 103

Full story:
http://www.forextell.com/macro-fund-...es-usdjpy-103/

Euro rallies post-ECB – massive squeeze in EUR/JPY

Full story:
http://www.forextell.com/euro-rallie...queeze-eurjpy/

Asia Wrap-Up - Flows/Orders

Full story:
http://www.forextell.com/asia-wrap-flowsorders/

EUR/USD – Corporate demand seen, but plenty ACB supply topside

Full story:
http://www.forextell.com/eurusd-corp...upply-topside/

Cable bounces, but cross flows continue to weigh on £

"Bargain hunters" (leveraged names) are picking up Cable, but cross flows - especially in EUR/GBP - continue to be negative for the Pound

Full story:
http://www.forextell.com/cable-bounc...ontinue-weigh/