Friday, April 26, 2013

Forex Brokers Profitability Q1 2013

In Q4 2012, the retail forex trading industry hit a slump. A number of brokers exited the U.S. market as the NFA enforced stricter regulations. Those who were left standing also suffered client losses.
But don't worry just yet! Forex Magnates has released its quarterly data on broker profitability. By the looks of it, it seems like forex brokers had an amazing start to 2013!
Source: Forex Magnates
Here are some observations from the data collected:

On account growth:

Not only was Interactive Brokers the top broker in terms of most profitable client accounts, it also acquired a hefty number of new clients. Now with 19,666 accounts, up 17.68% Q4 2012, it's closing the gap on market leaders OANDA and FXCM.
Meanwhile, Gain Capital also saw double digit accounts growth, aided by its acquisition of FX Solutions. The company now has 12,384 accounts under its belt.
Of all the brokers listed above, only IBFX/TradeStation and MB trading posted slightly less accounts in Q1 2013 than in Q4 2012.

On client profitability:

Despite the increase in volatility (which is welcomed by most traders) during the quarter, we saw that almost all brokers reported a decline in the percentage of profitable accounts from Q4 2012. In fact, only three brokers, Alpari, ILQ, and FXDD reported higher numbers in client profitability from 2012.
Interestingly, ILQ, the broker with the second least number of accounts, posted an increase of 33.5% in the number of profitable accounts, after it came in dead last at 22.7% last Q4 2012
This isn't to say that if you use these specific brokers you have a higher chance of being profitable. You should still do your research and see which brokers provides the services that best fit your needs!
For the most part, I think we can see this report as a bright spot for the forex trading industry as it reverses a recent trend of declining figures that started Q1 2012. Could this be a start of an explosive boom for the forex industry? Right now, it's too early to tell, but early signs point to brokers starting 2013 off on the right foot.
For more interesting data points and insights on US forex broker profitability, check out the Forex Magnates article, "Q1 US Broker Profitability Report Showing Signs of Optimism" at!

Read more:

Thursday, April 25, 2013

IG first broker to offer Bit Coin

Prices for the digital currency Bitcoin are experiencing volatility, sparking global interest. We are pleased to now offer binary bets on the exciting Bitcoin market, expiring on 31 May.


There’s currently a waiting list of over 10,000 to open an account with the primary bitcoin exchange, Mt.Gox, so this is a great opportunity to benefit from price movements in the Bitcoin market right now.
Do you think the market will finish above or below our predicted levels on 31 May? Simply log in, then visit our Binary Specials market and take a position if you think you know which way the Bitcoin is headed.


Bitcoin prices have climbed as Russian investors hurry to convert euros deposited in Cypriot banks into bitcoins, protecting their savings from the planned ‘haircut’. But this growth hasn’t been a smooth ride – the price of one bitcoin soared from $13.50 in January to $266 on 10 April, then lost more than 60% in one day before mounting a partial recovery.
Being a volatile currency the Bitcoin market is also incredibly liquid, experiencing trading volumes of over $100 million a day.

Wednesday, April 24, 2013

Physical Gold buying "Panic"

Following the entire "developing" world (where faith in paper money "backed" by $1 quadrillion in derivatives is at times questioned, and instead the people, for some inexplicable reason, fall back to hard currency equivalents) scrambling out to their local precious metal dealers to find "out of gold" signs virtually everywhere, yesterday it was the US Mint's turn to announce it had halted shipments of the popular one-tenth ounce gold American Eagle coin as it had run out, following a surge in demand (we expect this shortage will soon spread widely to traditional one-ounce denominations shortly).
Things in the US have gotten so bad, not only are most online dealers backlogged weeks and months in advance for most PMs (as the CEO of Texas Precious Metals explained in detail), but respected bullion vaults are also now on the verge of running out of inventory. As Reuters described, "Michael Kramer, president of Manfra, Tordella & Brookes (MTB), a major U.S. coin dealer in New York, has been inundated by orders from existing and new wholesale and retail customers. "It's panic. This is one of the busiest times in quite a while. People think gold's at the lows and they want to take advantage."
It was only a matter of time before the last bastion of paper money, London, also succumbed to the soaring demand for physical, and sure enough moments ago Bloomberg reported that the "Britain’s Royal Mint, established in the 13th century, sold more than three times more gold coins this month than a year earlier as prices declined."
Sales are more than 150 percent higher than last month, according to Shane Bissett, director of bullion and commemorative coin at the Royal Mint.

Sunday, April 21, 2013

Koo Says inflation in US based on liquidity 'should' have been 1600%

The existing (and ongoing) massive expansion of base money into the banking systems of the US, England, and Japan is without precedent. As Nomura's Richard Koo notes, at 16x statutory reserves,the liquidity 'should' have led to unprecedented inflation rates of 1,600% in the US, 970% in the UK, and 480% in Japan.
However, it has not, yet. In short, Koo continues, businesses and households in these economies have stopped borrowing money even though interest rates have fallen to zero. And with no one borrowing money and many actually paying down debt, the money multiplier has turned negative at the margin - because of the severe damage caused to balance sheets when the bubble collapse drove asset prices lower while leaving debts intact (so-called balance-sheet-recession).
This suggests that there is little physical or mechanical reason for the BOJ’s easing program to work. But the program could also have a psychological impact - and Japanese media is on an 'inflation' full-court press currently. The risk here is that not only borrowers but also lenders will start to believe the lies. No financial institutions anticipating inflation could ever lend money at current interest rates.No actual damage will be done as long as the easing program remains ineffective. But once it starts to affect psychology, the BOJ needs to quickly reverse the policy and bring the monetary base back to 'normal'. If the policy reversal is delayed, the Japanese economy (and inflation) could spiral out of control.

Via Richard Koo, Nomura,
The Money Multiplier... and inflation...
Before Mr. Kuroda was appointed BOJ governor, base money supplied by the Fed under quantitative easing amounted to 16.0x statutory reserves. The corresponding multiples for other central banks were 9.7x for the BOE, 4.8x for the BOJ, and 3.8x for the ECB. If the money multiplier were functioning properly, the money supply would therefore be 16 times larger than it currently is in the US, 9.7 times larger in the UK, 4.8 times larger in Japan, and 3.8 times larger in the eurozone.

If such an expansion in money supply actually took place in a short time, it would normally entail a similar increase in prices, leading to unprecedented inflation rates of 1,600% in the US, 970% in the UK, and 480% in Japan. The reason why this has not happened will be discussed in detail below.

In short, however, businesses and households in these economies have stopped borrowing money even though interest rates have fallen to zero. And with no one borrowing money and many actually paying down debt, the money multiplier has turned negative at the margin.
US and UK have 'not' been a success...
Central bank officials in the US and the UK claim quantitative easing has been a success because it prevented a Japan-like deflation. But, the rate of Japanese wage growth four to five years after the bubble collapsed was roughly equal to the levels now being observed in the US.
Common to all of these countries is the fact that businesses and households are saving in spite of zero interest rates. They are doing so because of the severe damage caused to balance sheets when the bubble collapse drove asset prices lower while leaving debts intact. Private savings are running at 8.8% of GDP in Japan, while the corresponding figures are 7.0% for the US, 3.3% for the UK, 8.1% for Spain, 8.6% for Ireland, 7.0% for Portugal, and 4.4% for Italy.

The fact that businesses and households in these economies are responding to zero interest rates by saving money rather than borrowing and spending aggressively clearly suggests that lending - and hence the money supply - will not expand no matter how much base money the central bank supplies.

Growth in private credit has been severely depressed. Even in the US, where conditions are said to be relatively healthy, private credit has yet to recover to pre-Lehman levels.

Quantitative easing - whether in Japan, the US, or the UK - cannot directly stimulate the economy or raise the rate of inflation so long as businesses and households refuse to borrow money and spend it.
But still the central bankers try...
Mr. Kuroda and other reflationists would probably argue that the newly announced easing program differs fundamentally from the incremental approach taken thus far because it marks a “new dimension” in aggressiveness. This is correct in one respect and wrong in another. Although Mr. Kuroda argues that the announcement of the current program has had a much greater impact than past announcements, this hypothesis has already been tested overseas, and the medium and long-term results do not support his conclusion.
Ignoring the reality that...
Clearly, the issue is not how aggressively or quickly the central bank eases, but rather the extent of the damage to private sector balance sheets caused by the bubble collapse. These experiences also underline the fact that a great deal of time is needed for businesses and households to repair their balance sheets.
and the empirical proof that...
The limited impact of the bold monetary actions undertaken by the Fed and the BOE suggests we should not expect much from the BOJ’s plan in the medium term in spite of its aggressiveness.
Unintended consequences...
Perhaps more important was why Japan’s interest rates were so low.

Essentially, the private sector had stopped borrowing money because of balance sheet problems, the subsequent debt trauma, and a shortage of domestic investment opportunities.

With no private-sector borrowers, Japanese banks selling JGBs yielding 0.6% to the BOJ may find themselves forced to reinvest the proceeds in JGBs given the lack of alternatives.If the replacement bond is likely to yield only 0.4%, the correct option is to continue holding the bond yielding 0.6%.

In that sense, quantitative easing in Japan has already reached its limits.
And QE may have run its course...
But the fact that businesses and households in both countries are now refusing to borrow in spite of zero interest rates suggests the impact of lower long-term rates may have spent itself
The underlying cause of a balance sheet recession is a decline in - and ultimate disappearance of - private demand for funds due to a critical shortage of borrowers.
Yet the quantitative easing policies adopted by central banks in the major economies are all designed to increase the number of lenders...
When the problem stems from the lack of willing borrowers, the central bank’s emergence as a new lender is hardly going to improve the situation.

If anything, new lending by the central bank will further weaken private sector financial institutions already hurt by excessive competition.

An objective analysis of the BOJ’s easing program in light of other countries’ experiences with quantitative easing suggests investors would be wise to rein in their expectations. There is no reason why the money multiplier should turn positive when private demand for funds is nonexistent despite zero interest rates.
The discussion above suggests that there is little physical or mechanical reason for the BOJ’s easing program to work. But the program could also have a psychological impact...
One notorious minister of propaganda is reported to have said that “people will believe a lie if it is repeated often enough.”

In today’s Japan the media—and especially the omnipresent variety shows on TV—cannot stop talking about inflation. These commentators are completely unaware that the money multiplier in Japan is negative at the margin even though rates have fallen to zero. They are simply repeating the simplistic view that aggressive easing by the BOJ will eventually generate inflation.
Hearing this from morning to night will cause some people to start worrying about inflation even though there is no way the BOJ’s policies can directly create inflation.If they start to anticipate higher prices and modify their behavior accordingly, inflation could become a reality.
Moreover, the Japanese media has a tendency to move all at once and in the same direction, causing the lie to be repeated even more frequently. It would therefore not come as a surprise if many people changed their behavior in expectation of future inflation.
The problem is - what if the people start to believe...
The risk here is that not only borrowers but also lenders will start to believe the lies.No financial institutions anticipating inflation could ever lend money at current interest rates. A financial institution that suddenly saw inflation on the horizon could not continue holding 10-year government bonds that yield 0.6%. The resulting rush to sell could trigger a crash in the JGB market, inflicting heavy damage on domestic financial institutions.

The question is how the Kuroda BOJ would respond to such a crash. If it began buying more JGBs, the monetary base would expand, stoking inflation concerns at a time when private demand for funds was already recovering and the money multiplier had turned positive at the margin.

But if the BOJ sold its JGB holdings in an attempt to quell inflation concerns, bonds would drop further, blowing a large hole in the balance sheets of financial institutions and the government.

By that time the monetary base could easily have grown to, say, 15 times statutory reserves. In that case the money supply would continue growing, causing inflation to spiral out of control, unless the central bank reduced the monetary base to about 1/15th of its current level.

I suspect that the BOJ would employ all the tools at its disposal to achieve this, including a sizable increase in the statutory reserve ratio, but all of those measures would serve to push rates higher, resulting in large losses for the BOJ and other JGBs investors.
Which could rapidly lead to...
If the government bond market crashed, losses on the BOJ’s JGB portfolio would be subtracted from the money it transferred to the national treasury, adding to the fiscal deficit. And if the portfolio was large enough at the time of the crash, it could even raise doubts about the viability of the Bank’s balance sheet.

The inflation fears and the talk of large losses at the central bank could then undermine confidence in the Japanese currency. Japan’s national debt now stands at 240% of GDP, domestic industry is being hollowed out, the population is aging and shrinking amid falling birthrates, and even the trade balance has fallen into deficit.

The chief reason why people continue to use the yen in spite of these bleak fundamentals is that the BOJ has earned their trust with its anti-inflationary actions.

If the BOJ recklessly stokes inflation, triggering a crash in the JGB market and heavy losses on the Bank’s bond portfolio, public confidence in both the currency and the central bank could evaporate overnight.
And don't rely on 80 year old 'proof' since it is different this time...
Mr. Kuroda’s methods have frequently been compared to those of the 1930s-era finance minister Korekiyo Takahashi, who championed a successful policy of BOJ underwriting of government debt issues. But Japanese people in those days could not move money freely overseas. The authorities today need to be especially careful inasmuch as almost anyone can move funds abroad with a telephone call or a few clicks on a computer screen.
Be careful what you wish for...
No actual damage will be done as long as the easing program remains ineffective.But once it starts to affect psychology, the BOJ needs to quickly reverse the policy and bring the monetary base back to a level more in line with the value of statutory reserves.
If the policy reversal is delayed, the Japanese economy could spiral out of control at a time when base money equal to many times statutory reserves is sloshing around in the market.
Moreover, the act of scaling back the monetary base must be carefully calibrated so as to minimize damage to the JGB market. The BOJ, Ministry of Finance, and Financial Services Agency should also have contingency plans in place in the event that easing triggers a crash in the yen or the bond market.
Full article below...

UK opposes financial transactions tax

The UK government has launched a legal challenge against plans for a European financial transactions tax (FTT).
The FTT, which aims to raise public funds and discourage speculative trading, will be adopted by 11 EU states - but not by the UK.
Ministers fear it could be imposed on UK firms trading with businesses based in one of those states.

Thursday, April 18, 2013

Swissquote Opens an Office in Malta

The Swiss forex broker and bankSwissquote has just released a report on its Q3 metrics. In line with the overall industry trend, revenues and profit rates are stagnant. Year –on-year, the company’s revenues decreased by 14.9% and net profit – by 30.5%. For 2012, Swissquote expects revenues of about CHF 112 million (appr. $118.5 million) across all its divisions (banking, forex, etc.). 
Speaking of forex alone, Swissquotes forex eForex division has registered adecrease of 12.9% in trading results – from CHF 38.4 million to CHF 33.4 million. The eForex trading volumes have decreases by 16.5%, from CHF 313 billion to CHF 261.9 billion. The reason for this is mainly the low volatility of the foreign exchange market and naturally, Swissquote is not the only company affected: other major brokers like have also reported decrease in retail trading volumes and revenue. 
 Swissquotes results - Q3 2012
Despite the results of the first three quarters of the year, and the continuing investor uncertainty, Swissquote is going on with its planned expansion. In October, the brokerset up a new office in Malta. This is Swissquote’s first European office outside its home base – Switzerland, and together with the company’s Dubai office helps the broker establish its positions on the European, Middle-Eastern and Asian markets. 
The broker obtained a Category 3 license from the Maltese Financial Services Authority (MFSA). Explained in simple terms, this license allows Swissquote to render forex services to EU member states without any restrictions. 
Up until now Malta was a favored spot for online gambling companies but apparently it is opening up to Forex as well. Another major broker operating out of the island is FXDD Europe

Swiss DOTS To Open for New Clients and Issuers

Back in May, together with Goldman Sachs and UBS Swissquote launched the Swiss DOTS service (Swiss Derivatives OTC Trading System). The service appears to be gaining popularity and the DOTS trading volumes continues to increase. In October alone it registered 7,600 executed transactions. As the service is already proven to be successful, it will be opened to more clients and issuers and the DOTS offering will no longer be restricted to Swissquote customers only. This is good news for the industry, as DOTS offers a scope of 33,000 leveraged products (for comparison, the Scoach market place only offers 23,000). 
Read Swissquote's full Q3 report here.

Wednesday, April 17, 2013

Pepperstone highlights broker location, comparison to Cyprus

As the crisis in Cyprus unfolds we are seeing the repeated importance of the safety of funds and how this can potentially impact your trading. Right now, it is critical to have confidence in your current broker.
Pepperstone believes that you should not have to worry about the safety of your money and much of this is about choosing the right broker with whom to trade. If you are trading with another broker, ask yourself if your funds are safe?

Why Trade with Pepperstone?

·            Pepperstone is regulated and licensed by the Australian Securities and Investment Commission (ASIC).
·            Client deposits are segregated under Australian Client Money Rules, meaning your funds are kept separately to the firm's money.
·            All Client funds are held in the National Australia Bank (NAB) - Rated AA by Standard & Poor's.
·            Pepperstone is audited by Ernst & Young - One of the world's top Audit Firms.
·            As an Australian company Pepperstone is located in a AAA Credit Rated Economy, one of only 8 countries to hold this gold    plated rating.
·            Pepperstone partners with some of the world's top financial, legal and audit firms, including:

Non-US Citizens have the ability to use non-US brokers. Click here to open a Forex account - Non-US Citizens only.

Gold retailers seeing frenzied demand for physical

We noted here that the plunge in the paper price of gold (and silver) had prompted considerable renewed demand for physical and now it seems the scramble among the "more stable investor base" is increasing. The shake out of ETFs and futures has left the Australian mint short of deliverables and Japanese and Chinese gold retailers seeing a "frenzied" surge in demand. The customers are not just the 'rich' or 'elderly'; in China "they tend to wear water shoes and come directly from the market...;" in Australia, "the volume of business... is way in excess of double what we did last week,... there’s been people running through the gate," and Japanese individual investors doubled gold purchases yesterday at Tokuriki Honten, the country’s second-largest retailer of the precious metal. The panic selling by a weaker 'imminent inflation-based' investor base has sparked physical shortages - "there’s been significant sales made as people see this as great value." It seems our previous discussions of a rotation from paper to physical were correct and this physical demand will eventually leak back into the paper markets.

Gold Wipes $560 Billion From Central Banks as Equities Rally

Exchange-traded products linked to gold dropped $37.2 billion in 2013 as the metal reached a two-year low yesterday. Gold funds suffered net outflows of $11.2 billion this year through April 10, the most since 2011, while global and U.S. equity funds had net inflows of $21.25 billion, according to Cambridge, Massachusetts-based EPFR Global.
Central banks are among the biggest losers because they own 31,694.8 metric tons, or 19 percent of all the gold mined, according to the World Gold Council in London. After rallying for 12 straight years, the metal has tumbled 28 percent from its September 2011 record of $1,923.70 an ounce. Growing economies and corporate profits, along with slowing inflation, boosted global equities by $2.28 trillion this year at the expense of the traditional store of value, according to data compiled by Bloomberg.

Monday, April 15, 2013

Some suspect institutional gold sales drive price down

According to Andrew Maguire, on Friday, April 12, the Fed’s agents hit the market with 500 tons of naked shorts. Normally, a short is when an investor thinks the price of a stock or commodity is going to fall. He wants to sell the item in advance of the fall, pocket the money, and then buy the item back after it falls in price, thus making money on the short sale. If he doesn’t have the item, he borrows it from someone who does, putting up cash collateral equal to the current market price. Then he sells the item, waits for it to fall in price, buys it back at the lower price and returns it to the owner who returns his collateral. If enough shorts are sold, the result can be to drive down the market price.
A naked short is when the short seller does not have or borrow the item that he shorts, but sells shorts regardless. In the paper gold market, the participants are betting on gold prices and are content with the monetary payment. Therefore, generally, as participants are not interested in taking delivery of the gold, naked shorts do not need to be covered with the physical metal.
In other words, with naked shorts, no physical metal is actually sold.
People ask me how I know that the Fed is rigging the bullion price and seem surprised that anyone would think the Fed and its bullion bank agents would do such a thing, despite the public knowledge that the Fed is rigging the bond market and the banks with the Fed’s knowledge rigged the Libor rate. The answer is that the circumstantial evidence is powerful.
Consider the 500 tons of paper gold sold on Friday. Begin with the question, how many ounces is 500 tons? There are 2,000 pounds to one ton. 500 tons equal 1,000,000 pounds. There are 16 ounces to one pound, which comes to 16 million ounces of short sales on Friday.
Who has 16 million ounces of gold? At the beginning gold price that day of about $1,550, that comes to $24,800,000,000. Who has that kind of money?
What happens when 500 tons of gold sales are dumped on the market at one time or on one day? Correct, it drives the price down. Investors who want to get out of large positions would spread sales out over time so as not to lower their sales proceeds. The sale took gold down by about $73 per ounce. That means the seller or sellers lost up to $73 dollars 16 million times, or $1,168,000,000.
Who can afford to lose that kind of money? Only a central bank that can print it.
I believe that the authorities would like to drive the gold price down further and will, if they can, hit the gold market twice more next week and put gold at $1,400 per ounce or lower. The successive declines could perhaps spook individual holders of physical gold and result in actual net sales of physical gold as people reduced their holdings of the metal.
However, bullion dealer Bill Haynes told that last Friday bullion purchasers among the public outpaced sellers by 50 to 1, and that the premiums over the spot price on gold and silver coins are the highest in decades.

Markets potential bloodbath

Gold is crashing this morning, falling over $90 to $1413 per ounce.

This move is looking to be largely based on institutional liquidation in Asia where Japanese bonds are being sold.

The Bank of Japan announced a massive $1.2 trillion QE effort on April 6. The move was lunacy given that Japan has already announced QE equal to over 20% of its GDP in the preceding years and GDP growth was still slowing.

According to Central Banker thinking, if something doesn’t work for 20 years the only answer is to do even more of it. So the Bank of Japan attempted a “shock and awe” move with an unprecedented QE equal to $1.2 trillion. Japanese bonds, already strained as investments by the demographic and economic issues plaguing Japan, have since become extremely volatile.

With this in mind, the move in Gold looks to be several large institutions liquidating positions to meet margin calls or redemptions due to the plunge in Japanese bonds. The technical damage to Gold has been severe.

Another factor here is the slowdown in China. The post-2009 “recovery” has largely been driven by China’s growth. The People’s Republic reported GDP growth of 7.7% on expectations of 8% last week. This, combined with misses in retail and industrial production, doesn’t bode well for the global economy.

On that note, now is the time to be preparing for a potential bloodbath in the markets. Just looking around the globe we see China’s economy slowing, Japan’s bond bubble bursting, Gold crashing, and more.

We offer several free Special Reports outlining these issues and more for individual investors. You can pick up individual copies at:

Gold down more as Boston bombed

Gold Plummets By Most In 30 Years, Stocks Have Biggest Drop Of 2013

A bad day all around. Liquidation continued from Asia and commodities were Baumgartner'd - especially gold and silver, suffering their biggest single-day drop in 30 years. Weak NAHB data stalled any BTFD in stocks and despite a couple of tries at EUR ramps, stocks had their biggest drop in 5 months. The horrible acts in Boston seemed a catalyst for late-day weakness in stocks but there was no bid and heavy volume ashomebuilders were hit their hardest in 10 months and US equity indices plunged into the close. Dow Transports had its worst day in 17 months. Away from stocks, FX markets were just as volatile with JPY's 2-day rally the biggest in 35 months (and AUD the biggest down day in 5 months). Swiss 2Y rates dropped to their lowest of the year and US Treasuries were relatively calm (though bid) until Boston hit and then dropped 3-4bps on the day. VIX also surged higher by 5.2 vols to 17.25% (its highest since the Italian elections).

S&P futures ended at the lows...

and VIX surged...

which took everything but the magic Dow below Cyprus levels...

As FX Carry was dumped in a hurry... AUDJPY especially...

But some other markets had seriously bad days...

and Gold broke all kinds of records...

after-hours gold dropped more and S&P futures also followed...
Charts: Bloomberg