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Order Book Trading Analysis

An order book can be used for quantifying the market’s intentions in the short term.

“With the advent of electronic trading, markets have moved to a system in which liquidity provision has become decentralized...The rule-driven execution of orders in these limit order books and the extensive data that is available for order-driven markets makes them ideal candidates for stochastic modeling.” (2)

What is an Order Book?

An order book is a ledger showing the Depth of the Market (DoM) consisting of a complete list of buying and selling orders for a particular financial-traded asset at a particular time. Every trading order in the book includes price and volume. Every exchange uses an order book to record, match, and execute trading orders.

Five Traditional Exchange Rate Theories

The traditional exchange rate models seek the identification of an equilibrium between two economies to calculate the fair value of the exchange rate. An equilibrium is based on the relative valuation of an identical commodity, relative inflation, relative level of real interest rates, etc.

These are the key exchange rate models and the relative pricing method they use:

1. Purchasing Power Parity (PPP) → Relative pricing of goods

The Purchasing Power Parity (PPP) model or else the “law of one price” estimates the adjustment needed on the exchange rate between countries for the exchange to be equivalent to each currency's purchasing power.

Forex brokers are financial companies that provide access to the Foreign exchange market by linking retail and institutional capital and the network of banks that offer liquidity.

How to Choose a Forex Broker?

These are the key issues to keep in mind when choosing Forex brokers:

ENSURING THE SAFETY OF FUNDS

• Is the Forex broker regulated by a trustable authority such as FCA UK, ASIC, or CySEC?
• Is the Forex broker headquartered in a safe country?
• Does the Forex broker operate for more than 3 years in the market?

Key Cross-Asset Correlations

A cross-asset correlation measures the degree to which the price of a financial instrument is affected by a change in the price of another instrument of a different asset class.

Introduction to Cross-Asset Correlations

The globalization of the economy and the unification of the world financial markets into a common area of investment opportunities are the drivers of the increased cross-asset correlations we have witnessed over the past 20 years.

Defining Correlation:

In general, a correlation between two variables expresses an average relationship that is backed by historical data. The correlation coefficient receives values between -1.0 and +1.0, and that means:

• +1.0 is the perfect correlation reflecting identical movements/directions

• -1.0 is the perfect negative coefficient reflecting identical opposite directions

  Read more: Cross-Asset Correlations