Swiss Franc Carry Trade Strategy

The September issue of Currency Trader Magazine was released today. Some of the highlights include:

• A look at an advanced carry trade strategy involving the Swiss Franc.
• The CFTC gains jurisdiction over retail forex fraud.
• What will drive the forex market in Q4.
• Yen crosses on the move.
• U.S. dollar rockets higher, Euro tumbles.
• China changes forex regulation.

The magazine can be downloaded for free by signing up at http://www.currencytradermag.com

Popularity: 82%

Alpari and Other Forex Brokers Increase Capital

The November 2007 Futures Commission Merchant report was released today and has been processed on http://www.brokerontop.com.  Here's an updated status of the broker's I mentioned may be in trouble earlier in the week:

• CMS Forex (needed 10 million, barely compliant in October) increased excess net capital by 4%
• Hotspot FX (need 5 million, barely compliant in October) increased excess net capital by 1%
• Forex Club (need 10 million, seriously undercapitalized in October) increased excess net capital by 65%
• MB Trading (need 10 million, seriously undercapitalized based on October report) increased excess net capital by 168%
• Easy Forex (don't know their leverage but still seriously undercapitalized based on October report) increased excess net capital by 184%
• Alpari (need 10 million, seriously undercapitalized based on October report) increased excess net capital by 271%

Check out the Small-cap Brokers.

Popularity: 4%

Forex Broker Financial Data

I've perviously mentioned that the CFTC release reports each month with financial information for Futures Commission Merchants which include Forex brokers.   Within this report are 2 important columns.  The first is the Adjusted Net Capital which is the adjusted net worth of a broker (FCM) after adjustments for certain deductions.  The second is the net capital requirement which are funds that the firm must possess in order to continue to operate.  I sent an email to the CFTC to find out a little more information on the relationship between the two columns.  One question that I asked was not directly answered which was, "How can the data best be interpretated to conclude the financial health of a broker?" The good thing was I did receive the following response from an attorney at the Division of Clearing and Intermediary Oversight.

---

Your October 4, 2006 e-mail to the
Division of Clearing and Intermediary Oversight (“DCIO”) has been
forwarded to me for response.  Please be advised that there is extensive
information about futures commission merchants (“FCMs”) and FOREX
on the website of the National Futures Association, a registered futures
association whose members include FCMs.  For example, the NFA website
includes a section on the financial requirements for FCMs, and also has a section
that addresses FOREX.  There is a link to the NFA website on the
CFTC’s website, and I have inserted the same link at the end of this
e-mail.

Link
to NFA website: 

Shortcut to: http://www.nfa.futures.org/compliance/issues_fcm_ib.asp

Your e-mail also asked specifically about
the relationship between a firm’s “adjusted net capital” and
its “adjusted net capital requirement.”  CFTC Regulation
1.17(a) requires each FCM to maintain a minimum amount of adjusted net capital,
which in general is the greatest
of the following: 

(1) $250,000;

(2) the sum of 8% of the FCM’s total
customer risk maintenance margin and 4% of its total noncustomer risk
maintenance margin;

(3) if the FCM is a member of a registered
futures association, the minimum capital amount required by the association
(currently, NFA is the only such association, and its minimum capital
requirements for members include several specific requirements for firms
engaged in FOREX); or

(4) if the FCM is also registered as a securities
broker or dealer, the amount of net capital required by Rule 15c3-1(a) of the
U.S. Securities and Exchange Commission.

The term “adjusted net
capital” is defined in CFTC Regulation 1.17(c), and generally refers to
an FCM’s net worth after adjustments for certain reductions required by
CFTC regulations.  For your convenience, I have inserted a link to
Regulation 1.17 at the end of this e-mail. 

If you have additional questions, please
feel free to call me at the phone number listed below.  If I am out of the
office, you may call another DCIO attorney…. 

Link to 17 CFR 1.17

Popularity: 2%

Is your money at your broker safe?

The quick and dirty answer to this is no.  Just ask retail traders whose monies were frozen when Refco went down.

I was reading an article in the Wall Street Journal today that brings up the fact that we as retail traders need more protection.  The CFTC or Commodity and Futures Trading Commission have a "segregation" rule which means that brokers must keep client funds separate from the firm's operating funds.  This rule only applies to U.S. traders who deposit funds for trading on-exchange futures or options on futures.  If you trade over-the-counter derivatives or off-exchange products such as FOREX, there is no rule against brokers mixing your funds in with the firms operating funds.  This is what Refco was doing.  

So the bottom line is that our money is absolutely not safe and there is nothing that says that a broker firm cannot use your deposit money to operate their business.  The unfortunate thing about all of this is that neither Congress or the CFTC have taken any steps to expand the segregation rule to FOREX traders.   

This is very disturbing and probably reason enough to only deposit what is absolutely necessary to trade.  In addition, if at any time you can withdraw money or profit, for this reason alone, you should do it.  

This article was written by FXCM's chief compliance officer so I would be very interested in knowing if FXCM follows their own rules and applies segregation to their client's funds.  I'll try to find out. 

Popularity: 1%

May 2 CFTC Report

I've been reading more about the Commitment of Traders Report and how knowing not only non-commercial positions but commercial as well can assist in longer term trades.  For those of you that don't know what the Commitment of Traders report is, let me tell you.

Some of this information was provided with assistance from Alexander Elder's book, "Entries and Exits"

First, the report is really the only way for private traders to get an idea of the volume for each currency pair.  Each week (Wednesday), the Commodity Futures Trading Commission releases the number of open positions, short positions and long positions in a given commodity.  These positions are given for 3 groups of traders, hedgers, big traders, and small traders.   "Savvy COT analysts compare current positions to historical norms and look for situations where hedgers, or the smart money (big traders) and small traders… are dead set against each other.  If one group is heavily short while the other is heavily long, which one would you like to join?  If you find that in a certain market the smart money is overwhelmingly on one side, while the small spec are mobbing the other, it is time to use technical analysis to look for entries on the side of the hedgers."

Currently, I only provide non-commercial positions or small traders.  You can read more about how to use just this information by going to http://www.forexproject.com/forex_volume

In the upcoming weeks, I am going to start providing data and graphs for all 3 groups of traders.  I just have to put my programming hat on and find the time to do it. 

Popularity: 4%

Forex Volume April 18th Report

The latest Commitments of Traders Report was released today.

Name	Open Int	Long Pos	Short Pos
Crude Oil	495795	183102	116353
CAD	40999	23225	16307
CHF	43779	10744	32912
GBP	49814	27302	22208
JPY	118999	38749	79890
USD Indx	18272	11223	4994
EUR	86016	70019	14677
NZD	6072	5272	800
AUD	30108	20597	9436

Crude Oil - ↑ Very Bullish

CAD - ↑ Very Bullish

CHF - ↓ Very Bearish

GBP - ↑ Bullish

JPY - ↓ Very Bearish

USD Index - ↑ Very Bullish

EUR - ↑Very Bullish

NZD - ↑Very Bullish

AUD - ↑Very Bullish 

Popularity: 7%

Forex Volume April 4th Report

The new Commitment of Traders report was released today and as always can be viewed at any time by going to http://www.forexproject.com/forex_volume

The positions continue to pile up on the side of the EURO.  This week there were +11,000 more long positions.  

Name	Open Int	Long Pos	Short Pos	Open Int Change	Long Pos Change	Short Pos Change	L/S Ratio
Crude Oil	459662	149602	119577	28262	14444	-8363	55.58
CAD	29797	12081	16227	-5994	-1193	-4858	42.68
CHF	52952	7412	45540	-4222	1592	-5615	14.00
GBP	38714	14015	24699	7174	1524	5924	36.20
JPY	94296	30603	63319	9065	3374	5678	32.58
USD Indx	17729	11227	4483	-1329	-2466	1120	71.46
EUR	83981	67859	15467	11310	11523	-58	81.44
NZD	5616	3002	2614	57	-227	284	53.45
AUD	49110	21629	27479	-1266	3107	-4375	44.04

Popularity: 2%

Newest Forex Volume Report Released

Open interest dropped across the board this week except in the Australian dollar.

Canadian Dollar
Big swing from NET LONG to NET SHORT

Swiss Franc
Very Bearish.  50,327 Short positions vs. 3,462 Long positions

British Pound
18,418 Short positions, 13,183 Long positions 

Japanese Yen
Decrease of 17,632 short positions.  Still Bearish 

USD Index 
Decrease of 7,196 long positions.  Still bullish with 11,114 Long positions and 4,491 Short positions 

Euro 
EURO remains Bullish with another decrease this week in Short positions (-10,149) 

New Zealand Dollar
Less Bullish than last week with decrease of 688 long positions and increase of 178 short positions 

Australian Dollar
Bearish.  Increase of 15,455 Short positions on increasing open interest. 

Crude Oil 
Less open interest than last week with an almost equal balance of long (128,840) to short (135,177) positions. 

Popularity: 4%

March 7 Commitment of Traders Report Released

As always, visit http://www.forexproject.com/Forex_Volume to view "Forex Volume"

CAD - No significant changes, VERY BULLISH
CHF - 22,373 less short positions, VERY BEARISH
GBP - Increase of 4,081 short positions, BEARISH
JPY - Increase of 14,161 short positions, BEARISH
EUR - Increase of 3,519 short positions, MIXED to slightly BULLISH
NZD - no significant changes, BULLISH
AUD - increase of 4,899 short positions, MIXED

Popularity: 4%

CFTC report for February 28th Released

As always, the "Forex Volume" reports can be viewed at http://www.forexproject.com/Forex_Volume/

Summary:

1.  CAD increase of 8,221 long positions (Sentiment:  Very Bullish)
2.  CHF increase of 23,807 short positions (Sentiment: Extremely Bearish)
3.  GBP decrease of 11,359 short positions (Sentiment: Bearish)
4.  JPY decrease of 33,735 short positions, increase of 14,628 long (Sentiment: Bearish)
5.  USD Index had no major changes (Sentiment: Extremely Bullish)
6.  EUR increase of 8,785 long positions (Sentiment: Bullish)
7.  NZD had no major changes (Sentiment: Bullish)
8.  AUD decrease of 3,474 long positions (Sentiment: Neutral)

Popularity: 3%

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