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Top Indicators for Forex Trading and How to Use Them

Read Time: 8 minutes



“I used fundamentals for nine years and got rich as a technician” 


– Martin S. Schwartz 
(author of Pit Bull: Lessons from Wall Street's Champion Day Trader). 


Are you leveraging the power of forex indicators in your trading strategy? Indicators play a vital role in identifying trends, assessing price momentum, and pinpointing potential entry and exit points.  


Whilst no single indicator guarantees success, understanding how to properly use a blend of them can greatly improve your trading decisions. However, used incorrectly, they can be devastating to a traders’ performance.

 

This blog post covers some of the most widely-used forex indicators and how each of them can enhance your forex trading strategy; Moving Averages (MAs), RSI, Bollinger Bands, MACD, and Fibonacci retracements and extensions.  



Table of Contents



Moving Averages


Moving Averages (MAs) are used to identify trends and smooth out price action. Two common types include: 


Simple Moving Average (SMA): Average prices over a specified period, giving equal weight to each data point. 


Exponential Moving Average (EMA): Gives more weight to recent prices, making it more responsive to price changes. 


Moving averages trading helps determine overall trend direction, but can also be used as support and resistance.  



Using MAs for Trend Analysis


The 50-day and 100-day simple moving averages are widely used by traders around the world. As a rule of thumb, the wide the delta between two moving averages, the stronger the trend, as shown in Figure 1 below. 



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Figure 1 – Examples of a strong and weakening trend using the 50sma and 100sma. 


Another commonly-used moving average is the 200-day SMA. When combined with the 50-day moving average, traders keep a close eye out for a ‘Golden Cross’, or ‘Death Cross’, when the 50sma crosses above, or below the 200sma. This pattern has a history of identifying a possible reversal after a strong trend. 



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Figure 2a – example of a ‘Death Cross’ on the AUDUSD daily chart. 


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Figure 2b – the resulting change in trend direction. 



Using MAs for Support & Resistance


Some traders use MAs as support and resistance levels for entering, and exiting trades. This method works on all timeframes but is most commonly used for intraday trading. For example, Figure 3 highlights a number of support and resistance points using the 50, 100, and 200 SMA’s on the 15min chart of EURUSD; 



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Figure 3 – Support and resistance using 50, 100, & 200sma on a 15min EURUSD chart. 


Relative Strength Index (RSI)



The Relative Strength Index (RSI) is a momentum oscillator that measures the speed and change of price movements. It ranges from 0 to 100, providing insight into whether an asset is overbought or oversold. 


Using RSI to identify overbought and oversold extremities: 


  • Overbought (70+): Indicates that an asset may be overvalued and could be vulnerable to a pullback. 

  • Oversold (30 or below): Suggests that an asset may be undervalued, potentially leading to a price rebound. 


Additionally, divergence occurs when the price and RSI move in opposite directions, signalling a potential reversal. For example, if the price makes a new high but the RSI does not, this “bearish divergence” may suggest a decline, as shown in Figure 4 below. 



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Figure 4 – RSI divergence on EURUSD 4-hour chart. 


This method of analysis is heavily relied on by pattern and reversal traders. However, it’s important to note that the lower the timeframe you trade on, the more ‘false’ divergence signals you will encounter, thus making this method of analysis more suitable for longer-term swing traders. 



Bollinger Bands


Bollinger Bands consist of a middle SMA line with two outer bands representing standard deviations from this average, creating a channel around price action. The width of the bands indicates market volatility. 


Bollinger Bands Strategy for Breakouts and Squeezes: 


  • Breakout Trading: Price moving beyond the upper or lower band can signal a strong directional move. 

  • The Squeeze: When the bands contract, it indicates low volatility and a potential breakout in either direction. Traders can prepare for a price move when bands begin to widen after a squeeze. 


Figure 5 below shows an example of the contraction (“The Squeeze”), followed by an explosive move upward. 


Figure 5 – Breakout trade on 1-hour EURUSD chart using The Squeeze method.  

Figure 5 – Breakout trade on 1-hour EURUSD chart using The Squeeze method. 


Bollinger bands are typically used with default settings, however, some traders may edit the settings to adapt the indicator to be more closely aligned with their trading stye/strategy. 

 


MACD (Moving Average Convergence Divergence)


MACD is a trend-following momentum indicator that displays the relationship between two moving averages (commonly the 12-day EMA and 26-day EMA).  



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Figure 6 – MACD indicator applied to EURUSD daily chart. 


The MACD indicator comprises of: 


  • Fast line: The difference between the two MAs (blue). 

  • Slow line: Signal line, which is a 9-day EMA of the MACD line (yellow). 

  • Histogram: Represents the difference between the MACD and the signal line. 


There are many ways to use the MACD in trading. The most common of which, is to identify the end of a trend. 


Interpreting MACD crossovers for trend exhaustion: 

  • Bullish Reversal: The two moving averages are below the zero line, the fast (blue), crosses the slow (yellow) to the upside, and the histogram turns bullish (green). 

  • Bearish Reversal: The two moving averages are above the zero line, the fast (blue), crosses the slow (yellow) to the downside, and the histogram turns bearish (red). 


MACD is often used on higher timeframes to determine whether a current trend is showing signs of exhaustion. In doing so, traders can identify profit-points and/or opportunities for reversal trades. 



Fibonacci Retracement


Fibonacci retracement levels are horizontal lines drawn at specific price points that can act as potential support and resistance levels. These levels are derived from the Fibonacci sequence and include 23.6%, 38.2%, 50%, 61.8%, and 78.6%. 


How to Use Fibonacci Retracement: Identify a significant peak and trough in the price chart, then draw the retracement lines to determine possible areas of reversal. Many traders use Fibonacci levels to predict areas where pullbacks might end, providing opportunities to enter trades in the direction of the main trend, as shown in Figure 7 below. 



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Figure 7 – Example of using Fibonacci retracements for trade entry. 


As shown in Figure 7, the Fibonacci tool is drawn from the previous high, to the previous low. In this example, we’ve used the most common retracement levels – 38.2%, 50%, and 61.8%. 


Fibonacci levels are effective on all timeframes and work extremely well in conjunction with other technical analysis indicators. 



Using and Combining Indicators Effectively


Whilst each indicator provides valuable insights, using multiple indicators can prevent produce more reliable signals. Here are some practical tips: 


  • Avoid clutter: Using similar indicators (e.g., two momentum indicators) may clutter charts without adding any significant value. 

  • Complementary combinations: For example, combining RSI with MACD can offer insights into both trend strength and momentum. Additionally, pairing Bollinger Bands with Moving Averages can highlight breakout opportunities and trend directions. 

  • Multiple timeframes: Balancing indicators across different timeframes allows you to gauge the broader trend while identifying precise entry and exit points. 


Every technical analysis indicator has its own strengths and weaknesses, so what might work for one trader, might not work for another



Pros and Cons of Indicators


Here are some Pros and Cons of the indicators we’ve discussed in this blog post; 

Moving Averages

  • Pros:
    • Smooths trends
    • Acts as dynamic support/resistance
    • Versatile across different timeframes


  • Cons:
    • Lags in fast-moving markets
    • Prone to false signals
    • Often requires confirmation from other tools



Relative Strength Index (RSI)

  • Pros:
    • Identifies overbought and oversold conditions
    • Provides divergence signals
    • Simple to learn and interpret


  • Cons:
    • Can generate false signals
    • Limited effectiveness in ranging markets
    • May stay in overbought or oversold zones for extended periods



Bollinger Bands

  • Pros:
    • Measures market volatility
    • Provides breakout signals
    • Makes spotting volatility easy


  • Cons:
    • Can be complex to interpret
    • Prone to false signals
    • Does not provide clear directional information


MACD (Moving Average Convergence Divergence)

  • Pros:
    • Combines trend and momentum analysis
    • Generates clear crossover signals
    • Histogram visually represents momentum changes

  • Cons:
    • Lagging indicator
    • Less effective in sideways markets
    • Can produce false signals


Fibonacci Retracements

  • Pros:
    • Highlights natural support and resistance levels
    • Works well in conjunction with other indicators
    • Useful in trending markets

  • Cons:
    • Placement of levels can be subjective
    • Often requires confirmation from other tools
    • Not all price pullbacks respect Fibonacci levels

We strongly recommend looking into all the different technical analysis tools and forex indicators available, find the ones that ‘make sense’ to you, and research into how they are calculated and how they were intended to be used. From there, you can adapt the settings as needed to fit your trading style and strategy. 

 

 

Conclusion


Incorporating the right indicators, whether it’s Moving Averages, RSI, Bollinger Bands, MACD, Fibonacci retracement, or other, can provide a more comprehensive view of market conditions, allowing you to become more confident in your analysis.  

Remember, whilst indicators offer insights, they are most effective when personalised to fit your strategy and continuously practiced. So, experiment with these tools, find what works best for you, and let your trading skills evolve.  

Ready to get started? Open an account with us.  



Remember: Successful forex trading requires a balance of economic insight, technical skill, and disciplined risk management. Stay informed, practise consistently, and adapt your strategies to ever-changing market conditions. 


03/12/2024
Trading and Brokerage
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Index CFD Dividends | Week 02/12/24

Read time: 3 minutes.


Indicative Dividend Adjustments for Indices: Week Starting December 2nd, 2024.


02/12/24

* Please note these figures are quoted in the index point amount and are subject to change

 



What is a dividend?


Dividends are a portion of company earnings given to shareholders. As indices are often composed of individual shares, an index dividend pays out based on individual shares proportional to the index’s weighting.


Trading on a CFD Index does not create any ownership of the underlying stocks, or an entitlement to receive the actual dividends from these companies.

 

What is an ex-dividend date?


An ex-dividend date is the cut-off date a share must be owned in order to receive a dividend. If an investor buys a share after the ex-dividend date, then they will not be entitled to earn or pay the next round of dividends. This is usually one business day before the dividend.

 

Do dividends affect my position?


Share prices should theoretically fall by the amount of the dividend. If the company has paid the dividend with cash, then there is less cash on the balance sheet, so in theory, the company should be valued lower (by the amount of the dividend).


Due to the corresponding price movement of the stock index when the ex-dividend date is reached, Fusion must provide a 'dividend' adjustment to ensure that no trader is positively or negatively impacted by the ex-dividend event.

 

How will the dividend appear on my account?


The dividend will appear as a cash adjustment on your account. If your base currency is different from the currency the dividend is paid out in, then it will be converted at the live FX rate to your base currency.

 

Why was I charged a dividend?


Depending on your position, given you are holding your position before the ex-dividend date, you will either be paid or charged the amount based on the dividend. Traders shorting an index will pay the dividend, whereas traders who are long the index will be paid the dividend.

 

Why didn’t I receive my dividend?


You may not have received a dividend for a number of reasons:


- You entered your position after the ex-dividend date

- You are trading an index without dividend payments

- You are short an index


If you believe the reasons above do not apply to your position, please reach out to our support team at [email protected] and we’ll investigate further for you.




02/12/2024
Market Analysis
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Introducing Six New Base Currencies for Forex Traders

Estimated Read Time: 15 minutes 

In an era where global markets are constantly evolving, adaptability and innovation have become the cornerstones of success. With this ethos in mind, we are pleased to announce the introduction of six new base currencies by Fusion Markets. Embracing the diversity of international finance, we are now offering traders the opportunity to engage with the Norwegian Krone (NOK), Swedish krona (SEK), Czech koruna (CZK), Hungarian forint (HUF), Swiss franc (CHF), and Danish Krone (DKK) as base currencies. 


Key Points:  

  • Fusion Markets has added six new base currencies: Norwegian Krone (NOK), Swedish Krona (SEK), Czech Koruna (CZK), Hungarian Forint (HUF), Swiss Franc (CHF), and Danish Krone (DKK). 

  • These additions aim to provide traders with more flexibility and access to a broader range of currency pairs. 

  • Each currency has a unique history and plays a significant role in its respective country's economy. 

  • The new base currencies offer opportunities for portfolio diversification and exposure to different economic regions. 

  • Traders can benefit from Fusion Markets' low commissions, zero minimum deposit, and access to multiple trading platforms. 

  • Understanding the correlations between these currencies and major global currencies is crucial for effective trading strategies. 

  • The introduction of these base currencies reflects the evolving nature of the global forex market and the importance of adapting to new opportunities.



Table of Contents

This expansion marks a significant milestone in our commitment to empowering traders with enhanced flexibility and access to a broader range of currency pairs. As the forex landscape continues to evolve, it is essential for traders to have access to a comprehensive selection of base currencies to navigate the ever-changing trends of the global economy. Let's explore their history, unique characteristics, roles, and correlations within the global financial ecosystem.

By registering with Fusion Markets, you will get access to: 

  • $0 minimum deposit 

  • No minimum account size 

  • White glove customer support 

  • Range of markets (including Forex and our new base currencies) 

  • TradingView, MetaTrader 4, MetaTrader 5, cTrader 

 

TRADE NOW 


Norwegian Krone (NOK)


The Norwegian Krone, denoted by the symbol "kr" and the currency code NOK, has been in circulation since 1875 when Norway joined the Scandinavian Monetary Union. Like many currencies, the Krone is subdivided into smaller units, known as øre, with 100 øre equaling 1 Krone. While Norway initially pegged its currency to gold, it later adopted a floating exchange rate regime, allowing market forces to determine its value. 

 

Historical Background of the Norwegian Krone 


The initial introduction of the krone occurred in 1875 as it replaced the speciedaler. At that time, the exchange rate was set at four kroner for one speciedaler. Subsequently, Norway became a part of the Scandinavian Monetary Union, a coalition that remained in existence until the outbreak of World War I. Throughout the Union's existence, the Norwegian krone adhered to the gold standard until 1931 when it was pegged to the British pound. 


In 1939, Norway's currency was linked to the U.S. dollar (USD). However, during the German occupation of Norway in World War II, it was tied to the Reichsmark. Following the war's conclusion, the currency was once again pegged, this time to the British pound (GBP). Shortly afterward, the krone's peg shifted to the US dollar until 1971 when it was allowed to float freely in the market for seven years before being linked to a basket of currencies. Then, in 1992, the central bank opted to move away from a fixed exchange rate system, enabling the currency to float based on foreign exchange rates. 

 

Correlations of the NOK 


The Norwegian krone ranks as the 14th most traded currency globally by value and exhibits a strong correlation with other currencies. Its value against major counterparts such as the US dollar and euro experiences significant fluctuations from year to year, primarily influenced by shifts in interest rates and global oil prices. 


Even long after the dissolution of the Scandinavian Monetary Union, the Krone maintains a notable correlation with the Danish krone and the Swedish krona. Conversely, its correlation with currencies like the British pound, euro, Canadian dollar, and others tied to oil prices remains comparatively low. Notably, some establishments in Oslo, Norway’s capital city, accept payments in US dollars or euros for goods and services. 


As a prominent oil exporter in Western Europe, Norway derives a substantial portion of its budget from oil revenues. Consequently, the value of the krone is closely intertwined with fluctuations in crude oil prices, reflecting trends in the global oil market. 


For instance, during the oil crisis of 2015, the krone depreciated by 20% against the dollar, marking its lowest level in a five-month period from October 2014 to February 2015. To learn more about other top Forex events in the new millennium, visit our blog. 



Swedish Krona (SEK)


The Swedish krona, symbolised as "kr" or "SEK," serves as the national currency of Sweden. With a rich history established in 1873, replacing the Swedish riksdaler as Sweden joined the Scandinavian Monetary Union, the SEK is renowned for its resilience and stability. 


Sweden's export-oriented economy, characterised by industries such as automotive, engineering, and telecommunications, heavily influences the SEK's performance. Furthermore, the SEK's correlation with global economic trends and monetary policies makes it an attractive option for traders seeking exposure to the broader European market. 

 

Historical Background of the Swedish krona 

The origins of the Swedish krona can be traced back to the 17th century when Sweden transitioned from the silver standard to a bimetallic monetary system. Over the centuries, the krona evolved, experiencing fluctuations in value, and undergoing reforms to adapt to changing economic conditions. 


In 1873, Sweden joined the gold-standard-based Scandinavian Monetary Union, pegging the krona to gold. Subsequently, Sweden embraced a floating exchange rate regime, allowing the krona's value to be determined by market forces. 

 

Correlations of the SEK 


The Swedish krona (SEK) exhibits correlations with various currencies, with some of the notable ones including: 


  • Euro (EUR): Given the proximity and extensive trade relations between Sweden and the Eurozone countries, particularly Germany, the Swedish krona often shows a significant correlation with the euro. 

  • Norwegian krone (NOK): As neighbouring countries with intertwined economies, Sweden and Norway often experience correlated movements in their respective currencies, the Swedish krona, and the Norwegian krone. 

  • Danish krone (DKK): Similarly, Sweden's proximity to Denmark and their shared economic ties can result in correlations between the Swedish krona and the Danish krone. 

  • US Dollar (USD): The US dollar is a major global reserve currency and a key player in international financial markets, so movements in the USD can influence the Swedish krona's exchange rate. 

  • British Pound (GBP): While not as strong as some of the other correlations mentioned, the Swedish krona may also exhibit some level of correlation with the British pound, particularly due to trade relations and economic ties between Sweden and the United Kingdom. 

 



Czech Koruna (CZK)


The Czech koruna, represented by the symbol "Kč" or "CZK," is the official currency of the Czech Republic. Emerging as a key player in Central Europe's economic landscape, the CZK embodies the region's transition towards a dynamic market economy. 


With a focus on manufacturing, automotive, and technology sectors, the Czech Republic's export-driven economy shapes the CZK's performance. Traders eyeing opportunities in Eastern Europe will find the CZK a compelling addition to their forex portfolios. 

 

Historical Background of the Czech Koruna 


Since February 8, 1993, the Czech koruna has served as the official currency of the Czech Republic, replacing the Czechoslovak koruna following the dissolution of Soviet Czechoslovakia into independent Czech and Slovak republics. Both the Czech koruna and the Slovak koruna (SKK) were introduced at par value in lieu of the Czechoslovak koruna. 


Despite joining the EU in 2004, the Czech Republic has not yet adopted the euro (EUR) as its official currency. Nevertheless, the nation remains in preparations to transition to the common currency, albeit without an official target date for implementation. Originally, the Czech Republic aimed to adopt the euro in 2012, but opposition led to the postponement of this move following a 2007 vote. 

 

Correlations of the CZK

 

The Czech koruna (CZK) exhibits correlations with various currencies, with some of the notable ones including: 

 

  • Euro (EUR): Given the geographical proximity and economic ties between the Czech Republic and the Eurozone countries, particularly Germany, the Czech koruna often shows a significant correlation with the euro. 

  • US Dollar (USD): As one of the world's primary reserve currencies and a key player in global financial markets, movements in the US dollar often influence the Czech koruna's exchange rate. 

  • Polish złoty (PLN): Due to Poland's proximity to the Czech Republic and the significant trade relations between the two countries, there tends to be a correlation between the Czech koruna and the Polish złoty. 


Hungarian Forint (HUF)

  • The Hungarian forint, being another currency from a neighbouring country in Central Europe, may also exhibit correlation with the Czech koruna due to shared economic factors and trade relations. 

  • Slovak koruna (SKK): Historically, before Slovakia adopted the euro, the Slovak koruna maintained a correlation with the Czech koruna due to their shared history and close economic ties as part of the former Czechoslovakia. 

 

These correlations may vary over time and can be influenced by factors such as economic conditions, trade relations, geopolitical events, and monetary policies of respective countries. Traders and analysts often monitor these correlations to gain insights into potential trends and movements in the Czech koruna's exchange rate. 

 

The Czech Republic's Approach to the Euro 


Concerns stemming from the European debt crisis stand as a primary factor driving resistance to the Czech Republic's full integration into the Eurozone and the adoption of the euro as its official currency. While eventual euro adoption is anticipated for the Czech Republic, recent discourse has also entertained the notion of the nation's potential departure from the European Union altogether. 


Termed 'Czech-Out' or 'Czexit' by the media and some political analysts, this concept parallels Brexit, depicting a scenario where the Czech Republic exits the European Union entirely. Although Czech President Miloš Zeman does not endorse the idea of EU departure, he has expressed openness to holding a referendum, allowing citizens to vote on the matter, similar to the process undertaken by the U.K. in June 2016. 


Despite these discussions, the Czech Republic boasts a relatively robust economy within the EU. It exhibits one of the highest Gross Domestic Product (GDP) growth rates and among the lowest unemployment rates, standing at approximately 2.9% in 2019, with inflation hovering around 2.8%. While unemployment experienced a modest increase in 2020, it settled at 3.8% as of November 2020. 

 

Hungarian Forint (HUF):

 


The Hungarian forint, denoted by the symbol "Ft" or "HUF," stands as the official currency of Hungary. Rooted in a rich tapestry of history and culture, the HUF reflects Hungary's economic resilience and dynamism. As a prominent player in Central and Eastern Europe, Hungary's diverse economy encompasses industries such as automotive, manufacturing, and agriculture. The HUF's correlation with regional economic developments and monetary policies offers traders a gateway to the vibrant markets of Eastern Europe. 

 

Historical Background of the Hungarian Forint  

The Hungarian forint saw its initial usage between 1868 and 1892, but it wasn't until 1946 that the modern forint was officially introduced, with the aim of stabilising the national economy in the aftermath of World War II. The currency derives its name from the gold coins of Florence known as fiorino d'oro, minted from 1252 onwards and widely circulated throughout the Austro-Hungarian Empire. 

 

While the forint's exchange rate has displayed some level of stability, uncertainties within the nation's economy have adversely impacted its value in the foreign exchange market. For instance: 

 

  • The acceptance of the Treaty of Trianon in 1920 following World War I had profound repercussions on the Hungarian economy, marked by the loss of over 70% of its pre-war territory and more than 60% of its pre-war population. Five of Hungary's ten largest cities prior to World War I were absorbed by neighbouring countries. This, coupled with war reparations and the erosion of its tax base, led to a significant devaluation of the HUF, with annualised inflation peaking at nearly 1,200% in 1923. 

  • In the late 1980s and early 1990s, Hungary, along with several other central and Eastern European nations, transitioned away from communist rule, prompted by economic stagnation and inflation. The transition, though challenging, was peaceful. Hyperinflation soared to 35% during the 1990s as Hungary embraced a market economy. Although the economy showed signs of improvement in the 2000s, rampant inflation undermined the currency's convertibility. 

  • Hungary's export-oriented economy heavily relies on a skilled labour force. Key trading partners include Germany, Slovakia, Italy, Romania, and Austria. Notable industries encompass car manufacturing, production of car parts, and manufacturing components for radios and televisions. 

 

According to World Bank data, Hungary reported a -4.7% contraction in gross domestic product (GDP) in 2020 and a 5.1% inflation rate in 2021. This downturn primarily stemmed from the economic repercussions of the global COVID-19 pandemic. 

 

Correlations of the HUF 


The Hungarian forint (HUF) exhibits correlations with various currencies, including: 

 

  • Euro (EUR): Given Hungary's geographical proximity to the Eurozone and its extensive trade relations with Eurozone countries, particularly Germany, the Hungarian forint often shows a significant correlation with the euro. 

  • Polish złoty (PLN): Poland and Hungary have significant trade relations, but Poland does not share a direct border with Hungary. Therefore, the Hungarian forint may exhibit correlation with the Polish złoty. 

  • Czech koruna (CZK): Similar to Poland, the Czech Republic shares a border with Hungary, and there are considerable trade ties between the two countries, potentially leading to correlations between the Hungarian forint and the Czech koruna. 

  • Romanian leu (RON): Romania is another neighbouring country to Hungary, and while the economic ties may not be as extensive as with Poland or the Czech Republic, there can still be correlations between the Hungarian forint and the Romanian leu. 

  • US Dollar (USD): The US dollar is a major global reserve currency, and movements in the USD can influence the Hungarian forint's exchange rate, especially during times of global economic uncertainty. 

 



Swiss Franc (CHF)


The Swiss franc, symbolised as "CHF," holds a revered status as a safe-haven currency and a bastion of stability in the global financial landscape. Renowned for Switzerland's tradition of neutrality, fiscal prudence, and financial sophistication, the CHF embodies the quintessential attributes of a haven asset. Switzerland's thriving banking sector, precision engineering, and pharmaceutical industries underpin the CHF's allure as a currency of choice for investors seeking refuge during times of uncertainty. 

 

Historical background of the Swiss franc 


Until 1798, approximately 75 entities within Switzerland were engaged in coin minting activities, resulting in the circulation of 860 distinct types of currency featuring varying denominations, weights, and monetary systems. Among these currencies were thalers originating from cities such as Bern, Basel, Zurich, and Geneva. 


In 1798, the Helvetic Republic introduced a new monetary framework, anchored by the Berne thaler, equivalent to six grams and three-quarters of pure silver. This currency, known as the franc, remained in circulation until the dissolution of the Helvetic Republic in 1803 but continued to serve as the basis for currencies utilised by several member states of the Reformed Swiss Confederation. 


In 1848, with the adoption of the new Swiss Federal Constitution, the exclusive authority to issue currency within the country was granted to the federal government. The initial federal monetary legislation, enacted on May 7, 1850, by the Federal Assembly, established the franc as the official monetary unit of Switzerland. Concurrently, both the Swiss franc and the French franc were introduced into circulation. 


The establishment of the Latin Monetary Union between 1865 and the 1920s, comprising Switzerland, France, Belgium, and Italy, further intertwined the Swiss franc's value with those of its counterparts. Under this union, the currencies of all four nations were pegged to the value of silver. Additionally, the Swiss franc was incorporated into the Bretton Woods exchange rate system following World War II, a framework that persisted until the early 1970s. Notably, until 1999, the exchange rate of the Swiss franc was tied to the price of gold. 

 

Factors Influencing the Swiss Franc (CHF) 


  • Swiss National Bank and Monetary Policy 


The Swiss National Bank (SNB) serves as Switzerland's central bank, entrusted with the responsibility of formulating monetary policy and managing exchange rates. Unlike some central banks, the Swiss National Bank does rely on a specific policy rate, previously the Libor target range, to regulate monetary conditions. Previously, it utilised FX swaps and repurchase agreements to influence both the money supply and interest rates. To bolster liquidity, the Bank engages in purchasing US dollars (or other foreign currencies) against Swiss francs. SNB officials wield the ability to impact the Swiss franc through their statements and commentary concerning the currency, liquidity, and monetary matters. Any alterations in monetary policy have consequential effects on the currency. 


  • Macroeconomic Indicators 

A plethora of economic indicators relating to Switzerland's economy and market, including inflation, employment data, GDP rates, and industrial production, exert influence on the Swiss franc. 


  • Cross-Exchange Rates 

Fluctuations in non-dollar exchange rates or cross-exchange rates can influence the USD/CHF pairing. Fluctuations in non-dollar exchange rates or cross-exchange rates such as GBP/CHF may not have a significant or predictable impact on USD/CHF, due to the weaker correlation between the British pound and the Swiss franc. 


  • Positive Correlation with the Euro 

The Swiss franc exhibits a positive correlation with the euro, owing to the close economic ties between Switzerland and the Eurozone, particularly Germany. This correlation is notably apparent in the inverse relationship between the USD/CHF and EUR/USD pairs. When the EUR/USD experiences sharp movements upwards or downwards, the USD/CHF reacts correspondingly but inversely, consistently moving in the opposite direction. 

 


Danish Krone (DKK)


Danish Krone, represented by the symbol "kr" or "DKK," serves as the official currency of Denmark, Greenland, and the Faroe Islands. As a stalwart of Scandinavian prosperity and innovation, the DKK reflects Denmark's enviable track record of economic stability and social welfare. Denmark's diversified economy, encompassing industries such as renewable energy, shipping, and agriculture, shapes the DKK's performance. Moreover, Denmark's commitment to prudent fiscal policies and sound governance enhances the DKK's appeal as a reliable currency for international traders. 

 

Historical Background of the Danish Krone 

 

A timeline with purple dots and a plane Description automatically generated with medium confidence 

The history of coin production and usage in Denmark spans numerous centuries, with organised minting activities dating back to as early as the 10th century. The earliest official Danish coins were established on the Carolingian silver standard, a system of silver currency introduced in France during the era of Charlemagne, aiming to replace the gold coinage of the Roman Empire. This silver-based monetary system, consisting of pennies, shillings, and pounds, eventually became the foundation for the British pound sterling in Great Britain. 


Regrettably, Danish monarchs, like many rulers of their time, pursued practices of periodically debasing their currency by reducing the actual silver content in minted coins, leading to multiple remonetisations in attempts to restore public trust in the nation's monetary system. One significant event in this regard was the inception of the current Danish krone in 1875. 


The introduction of the krone coincided with a period when transactions involving coins were becoming increasingly cumbersome, prompting a transition towards greater reliance on printed banknotes alongside the implementation of the new currency. 


Denmark made several endeavours to fix its currency to the gold standard, but ultimately abandoned this endeavour in 1931, coinciding with Great Britain's decision to depart from the gold standard in the same year. During Denmark's occupation by Germany in World War II, the Danish krone was temporarily linked to the German Reichsmark, followed by a peg to the British pound in the immediate postwar era. 


Presently, the krone is pegged to the euro under the European Exchange Rate Mechanism (ERM) II, a mechanism aimed at curbing excessive volatility in the euro's exchange rate with European trading partners. Over recent decades, Denmark has contemplated joining the eurozone and adopting the euro as its official currency. However, the most recent public referendum in 2000 narrowly rejected this proposition by a margin of 53% to 47%. 


 

The Danish Krone in Forex Trading 


The Danish Kroner (DKK) holds a distinctive position within the realm of Forex trading, presenting opportunities and perspectives that are indispensable for traders seeking success in navigating the global currency market. Serving as the official currency of a nation renowned for its stable economy, high living standards, and robust financial systems, the DKK serves as a conduit for comprehending the Scandinavian financial landscape. 


  • Stability and Security: 

Denmark's economic stability finds manifestation in its currency, rendering the DKK a preferred asset for traders seeking safe-haven investments amid periods of global economic uncertainty. The nation's strong fiscal policies, minimal inflation rate, and transparent governance contribute to the stability of the Kroner, instilling a sense of confidence in Forex traders. 


  • Diversification: 

Engaging in DKK trading enables investors to diversify their currency portfolios, spreading risk and accessing markets characterised by lower volatility. The DKK's correlation with major currencies like the Euro and the US Dollar equips traders with strategic alternatives, empowering them to make informed decisions aligned with global economic trends. 


  • Insight into the Scandinavian Market: 

Understanding the DKK is essential for traders interested in the Scandinavian region, as the currency serves as a bellwether for the area's economic well-being. It furnishes valuable insights into market dynamics, investment prospects, and potential risks prevalent in the region. 


  • Trading Strategies: 

Forex traders can leverage the stability and regional significance of the DKK to formulate tailored trading strategies. Whether engaging in carry trades, utilising the currency for hedging purposes, or capitalising on its low volatility for short-term gains, the DKK offers a spectrum of opportunities suitable for both novice and seasoned traders. 


 

Correlations of the DKK 


The Danish krone (DKK) exhibits correlations with various currencies, including: 

 

  • Euro (EUR): Given Denmark's proximity to the Eurozone and its extensive trade relations with Eurozone countries, particularly Germany, the Danish krone often shows a significant correlation with the euro. 

  • Swedish krona (SEK): Denmark shares a border with Sweden, and both countries have significant trade relations. Therefore, the Danish krone may exhibit correlation with the Swedish krona. 

  • Norwegian krone (NOK): Norway is another neighbouring country to Denmark, and while the economic ties may not be as extensive as with Sweden, there can still be correlations between the Danish krone and the Norwegian krone. 

  • British Pound (GBP): While there may be some level of correlation between the Danish krone and the British pound, the correlation is generally weak. The Danish krone is more heavily influenced by the Euro due to Denmark's ERM II peg. 

  • US Dollar (USD): The US dollar is a major global reserve currency, and movements in the USD can influence the Danish krone's exchange rate, especially during times of global economic uncertainty. 

 

Conclusion



In conclusion, the introduction of these six new base currencies underscores our dedication to providing traders with unparalleled opportunities to diversify their portfolios and capitalise on emerging market trends. Whether it's harnessing the resilience of the Norwegian Krone, navigating the intricacies of the Swiss franc's safe-haven status, or tapping into the dynamic economies of Central and Eastern Europe, our expanded offering opens doors to a world of possibilities in forex trading.  


For further insights into currency pairs and the foreign exchange market, register with Fusion Markets to stay updated on all the latest macroeconomic developments. 

 

 

 


12/11/2024
Trading and Brokerage
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The Hidden Forces Driving Price Movements

Read Time: 5 minutes

 

There are true complexities that drive price movements in the forex market. Beneath the surface of visible price changes lies the market’s microstructure; an intricate web of factors influencing how prices fluctuate.  


Market microstructure focuses on the mechanics of trading, the behaviour of participants, and their involvement in the fluctuations of price. Understanding these hidden forces gives traders a clearer picture of market behaviour, equipping them to make more informed decisions in a competitive and chaotic environment.




Components of Forex Market Microstructure




Order Flow Trading


Order flow is the net volume of buy and sell orders in the market and plays a major role in shaping price movements. Increased buying pressure can push prices up, whilst selling pressure often leads to declines. By analysing order flow, traders can gauge momentum and anticipate short-term price shifts.



Bid-Ask Spreads


The difference between the bid (buy) and ask (sell) prices reflects market liquidity and can vary depending on trading volume and volatility. Wider spreads generally indicate lower liquidity or heightened risk, while narrower spreads signal a more stable and liquid market. Monitoring bid-ask spreads helps traders assess market conditions and transaction costs.



Market Depth and Forex Liquidity


Market depth refers to the volume of buy and sell orders at various price levels, offering insights into forex liquidity. High market depth indicates robust liquidity, making it easier to execute large trades without impacting prices. Shallow depth, however, can lead to higher volatility, as fewer orders can cause rapid price changes.



Market Participants


The forex market comprises of various participants, including;

  • Governments
  • Banks – Central & Commercial
  • Hedge funds & Investment portfolios
  • Corporations
  • Institutional Traders
  • Retail traders



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Large players such as banks and hedge funds have a significant influence on price movements due to their transaction volume. In contrast, retail traders have less influence individually but can impact markets in aggregate, particularly in lower liquidity situations.



Price Discovery Process


Price discovery is the process by which the forex market determines the price of a currency pair. This process is heavily influenced by information asymmetry, where certain participants have more information than others, often leading to advantages in trading. For instance, institutional traders may have access to economic forecasts before retail traders, potentially moving prices before the data reaches the wider market.


High-frequency trading (HFT) has also become a significant part of price discovery. HFT involves executing trades at extremely high speeds, often driven by algorithms designed to capitalise on minute price discrepancies. While HFT can add liquidity, it can also cause rapid price changes that impact the price discovery process.



Liquidity Providers and Market Makers


Liquidity providers, such as banks and large financial institutions, ensure the forex market operates smoothly by offering to buy or sell at quoted prices, maintaining liquidity.


Market makers are liquidity providers who actively facilitate trades by setting bid and ask prices. By adjusting these prices, market makers can influence short-term price movements, especially in low-liquidity situations.


Market makers operate through both electronic trading and voice trading channels.


  • Electronic trading, facilitated by platforms and algorithms, is known for its speed and efficiency.

  • Voice trading, on the other hand, is often reserved for complex or large orders requiring negotiation, allowing for nuanced price adjustments in response to changing market conditions.



Order Types and Their Impact


The type of order a trader places can affect market dynamics significantly:


  • Limit Orders: These are orders to buy or sell at a specified price or better. They contribute to market depth and can create temporary support and resistance levels, as these orders accumulate in the order book.

  • Market Orders: Executed immediately at the current price, market orders can trigger rapid price shifts, especially if large orders are placed in low-liquidity periods. Market orders are often used to enter or exit positions quickly but may lead to slippage.

  • Stop Orders: These orders, triggered when prices reach a specified level, can amplify market moves as clusters of stop orders trigger simultaneously. This is common in trending markets, where stop-loss orders cascade as prices rise or fall.

  • Hidden and Iceberg Orders: Hidden orders are not visible in the order book and are typically large institutional orders that aim to reduce market impact. Iceberg orders reveal only a portion of the total order, with the remainder hidden until the visible part is filled.


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Microstructure Anomalies and Opportunities


Understanding market microstructure can help traders identify unique trading opportunities:


  • Flash Crashes and Liquidity Holes: Flash crashes occur when liquidity temporarily dries up, causing sharp, rapid price declines. Such anomalies are often triggered by HFT algorithms or large, sudden orders in thin markets, such as the Asia session. Identifying potential liquidity holes can help traders avoid losses in volatile moments.

  • Arbitrage Opportunities: Discrepancies in currency prices across different platforms or regions can lead to arbitrage opportunities. While these are usually short-lived, microstructure knowledge can help traders identify and act on price inefficiencies quickly.

  • Leveraging Microstructure Knowledge: Advanced traders can use microstructure insights to make informed decisions, such as placing orders at levels where hidden liquidity or large stop orders might exist. This allows them to anticipate moves driven by institutional activity or market maker adjustments.



Conclusion


Forex market microstructure highlights the true forces that drive price movements, from order flow trading and market depth to the impact of different participants. For traders, understanding these components is crucial to being successful in the forex market. By analysing and having a thorough understanding of microstructure, you can gain a competitive edge, interpreting price action in real-time and making more strategic decisions.


As the forex market continues to evolve, staying updated on microstructure concepts and integrating them into trading strategies can lead to a deeper understanding of market behaviour. This knowledge can enable you to adapt and succeed over the long-term.


Trade with us today!

12/11/2024
Market Hours
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Upcoming Holidays in November 2024

Read time: 3 minutes.


This November Indian Holiday (1st November), Republic Day / Guru Nanak Jayanti (15th November), Indonesia Public Holiday (27th November), and US Thanksgiving Holiday (28th - 29th November) are upcoming holidays that will affect standard market hours. Please take the following holiday hours into account and adjust your positions accordingly.




Holiday Hours November

Please note the following changes are based on MT4 server time (GMT +3).  



What does this mean for you? 


If you trade the markets above then you’ll need to be aware of the days the market is closed or if there are changes to opening hours. Additionally, please note that there will be reduced liquidity and some spreads may widen on some products during these periods. If these are not markets you typically trade, then these changes will not affect you and you can continue trading as usual.  

 

Do I need to do anything? 


The main thing you need to do is be prepared for changes in market hours and ensure you have adjusted your positions accordingly. You must also remain aware of the potential changes to liquidity and spreads during this time. Please make sure your account has been sufficiently funded. Log into your Client Hub here to fund your account. 

 

Questions? 


Don’t worry we will still be working around the clock, our support team is available 24/7, so please reach out to us if you have any questions or concerns. 
 
Thanks for trading with Fusion Markets. Happy Holidays and Happy Trading.


01/11/2024
Market Analysis
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Separating Hype from Reality in Algorithmic Trading 
Read Time: 6 Minutes


The integration of Artificial Intelligence (AI) in forex trading is reshaping the landscape of financial markets. With the potential to analyse vast data sets and execute trades at incredible speeds, AI offers exciting possibilities. However, traders must navigate the hype and understand the practical realities of AI's capabilities and limitations in the dynamic forex environment.



Table of Contents


  1. Introduction
  2. The Promise of AI in Forex
  3. Current Realities of AI in Forex
  4. Common Misconceptions
  5. AI vs. Human Traders
  6. The Future of AI in Forex
  7. Final Thoughts



Introduction


Artificial Intelligence (AI) is revolutionising many industries, and forex trading is no exception. It’s estimated that AI-driven trading could reach US$19 billion in revenue by 2028.


According to the International Monetary Fund (IMF); “the share of AI content in patent applications related to algorithmic trading has risen from 19 percent in 2017 to over 50 percent each year since 2020, suggesting a wave of innovation is coming in this area.”





Although this may be exciting at first, every trader must be sure to distinguish between the hype, and reality.


AI is still evolving, and its application to the forex market is not yet foolproof. AI should be considered as a tool, rather than a solution to guaranteed profits. Although AI can process data incredibly quickly, human discretion is still a pivotal aspect of trading.


The Promise of AI in Forex


AI promises to bring numerous benefits to forex trading, often by outperforming humans in specific areas;


  • Enhanced Data Analysis: AI can analyse vast amounts of data in real-time, much quicker than any human ever could. It can quickly identify patterns across multiple currency pairs, interest rates, and economic indicators, something that would take human traders hours, if not, days.


  • Faster Trade Execution: In high-frequency trading (HFT), speed is everything. AI algorithms execute trades in milliseconds based on pre-set criteria, enabling traders to capture small, short-term price movements before the competition even reacts.


  • Emotion-Free Decision Making: Emotion and trading don’t mix - often leading to costly mistakes. AI removes the element of fear, greed, or hesitation, making decisions purely based on data and predefined algorithms. This is especially beneficial in volatile markets where emotional discipline is paramount.



Current Realities of AI in Forex


While the promises are enticing, the reality of AI in forex is far more complex. AI may have seen success in niche areas like high-frequency trading (HFT) and pattern recognition.


However, AI has significant limitations and challenges that traders must be aware of:


  • Data Dependency: AI is only as good as the data it’s given. Poor data quality or biased historical data can lead to incorrect predictions. This is why many AI models fail during black swan events that disrupt the market, such as the 2020 pandemic.


  • Complexity in Adapting to Market Conditions: AI excels in stable or predictable environments but struggles in a chaotic environment that poses many unforeseen disruptions and volatility. The most recent example, the 2020 Covid-19 pandemic, many institutions had become accustomed to.


As an example, financial institutions have been known to use AI algorithms to exploit small price discrepancies across different markets, leading to some great successes. However, when the 2020 Covid-19 pandemic disrupted markets, AI struggled to adapt to the rapidly changing conditions and, in some cases, leading to large losses for the institutions running them.


For more insights on how AI is evolving in forex trading, you can check out this detailed post on Fusion Markets, where the use of AI tools like ChatGPT is discussed in the context of market analysis and trading strategies.



Common Misconceptions About AI in Forex


There’s no shortage of misconceptions about AI's role in forex trading;


  • "Set it and forget it" myth: Many traders believe AI can be programmed once and left to generate profits indefinitely. This is far from reality. AI algorithms require constant monitoring, updating, and recalibration to keep pace with the ever-changing dynamics of the market.


  • AI guarantees profits: Some traders fall for the myth that AI trading guarantees profits. However, no system—AI or otherwise—can ensure consistent profits. Forex markets are affected by too many unpredictable factors, such as global politics, economic crises, and even natural disasters, for any system to be foolproof.


  • AI can predict black swan events: Despite all its power, AI cannot predict rare, unpredictable events like black swans. These events, by their nature, fall outside the scope of traditional data patterns and are difficult for AI to forecast.



AI vs. Human: A Balanced Comparison





AI and human traders bring different strengths to the table, and understanding these distinctions is key to developing a robust, and successful, trading strategy.


  • AI’s Strengths: AI excels at processing massive amounts of data, identifying subtle market patterns, and executing trades with precision and speed. It removes human biases and can operate 24/7 without fatigue.


  • Human Trader’s Strengths: On the other hand, human traders excel in areas where AI currently struggles—especially in understanding the broader context behind market movements. Human intuition, experience, and the ability to adapt to unpredictable events are areas where traders can outperform AI. For instance, human traders can weigh the political implications of an unexpected event, such as Brexit, where AI on the other hand might struggle to incorporate in real-time decision-making.


A hybrid approach that combines AI’s strengths with human insight may be the best way forward. AI can manage data processing and execution, while human traders focus on strategy, risk management, and adjusting for unforeseen market conditions.



The Future of AI in Forex


It’s still early days for AI in forex trading, but it’s rapidly evolving. Emerging technologies such as Natural Language Processing (NLP) and quantum computing are expected to transform AI's role in the financial markets further.


  • NLP: This allows AI systems to interpret news articles, social media sentiment, and other forms of unstructured data that can influence market movements. For example, NLP can be used to gauge how a new economic policy or geopolitical event may impact currency pairs.


  • Quantum Computing: While still theoretical in many applications, quantum computing holds the potential to perform complex calculations much faster than traditional computers. This could give AI even greater predictive power in markets where speed and computational capacity are crucial.



Our Final Thoughts


AI has undeniably transformed many industries, including the forex market. Whilst it can enhance data analysis, execution speed, and remove emotional biases, it’s no holy grail. The best approach is to employ AI with a balanced perspective—recognising its limitations whilst leveraging its strengths to complement your own trading strategies.


In short, AI is a powerful tool, but not a guarantee of success. The key to successful AI-driven trading lies in combining human intuition with algorithmic precision – we, as traders, must keep an eye on these trends but always remain cautious about relying on AI-driven systems.


Happy Trading

29/10/2024
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