Articles

Forex Regulation -What does it mean for brokers, IBs, and strategy providers?

As it is legally defined, regulation is a rule of order having the force of law, prescribed by a superior or competent authority, relating to the actions of those under the authority's control. Find out more about Forex regulation and why choosing a regulated brokerage service is important and can have a significant impact on your trades.

Regulation in the Forex Market

The Foreign Exchange Market, commonly known as FX, or simply Forex – is the biggest and most liquid market in the entire world – with a daily trading volume of around US $5.3 billion. The market is active 24/7, but there is no centralized regulatory body to conduct and supervise the activity of all online forex brokers at all times. Ever since the internet was introduced, hundreds of forex brokerage websites started to appear daily, which made this industry very competitive, but extremely risky, too.

Regulation in the Forex Market is the one that ensures fair and ethical business behavior; and requires brokers to operate in strict compliance with its rules and standards. It is safe to say that being regulated is now a criterion for traders when choosing an online forex brokerage provider. Before you start forex trading and open an account with an online forex broker - the first thing you need to do is check if it is regulated!

Sovereign Credit Rating

Credit ratings provide insight regarding the level of risk associated with a particular country.

• Credit rating agencies offer information about whether bond issuers can meet their future obligations

• There are three major rating agencies: Standard & Poor's, Moody's, and Fitch

Investment Grades per Agency

□ Moody’s considers a Baa3 or higher rating to be of investment grade, Ba1 and below is considered speculative

□ Standard & Poor's considers BBB- or higher rating to be investment grade, and BB+ or lower is considered to be speculative or "junk" grade

□ Fitch, like S&P, considers BBB- or higher rating to be investment grade, and BB+ or lower is considered to be speculative or "junk" grade

KAMA is a trend-following indicator that aims to serve multiple missions, for example, to identify the trend and estimate key time turning points.

Introduction to Kaufman's Adaptive Moving Average

Kaufman's Adaptive Moving Average (KAMA) is designed to evaluate market noise and market volatility. The indicator was developed by Perry Kaufman in 1995 {Smarter Trading, Improving Performance in Changing Markets. New York: McGraw-Hill, Inc.}. You can use the KAMA indicator when trading with the MT4/MT5 platforms.

KAMA Settings

The recommended settings by Perry Kaufman include KAMA(10,2,30).

There are two ways to use KAMA:

(i) A longer-term KAMA to define the overall trend (10,5,30)

(ii) A shorter-term KAMA for trading signals (10,2,30)

The second (shorter-term) KAMA can generate trade signals when the price crosses above/below KAMA.

News-Trading in the Foreign Exchange Market and Economic Indicators

Economic indicators are periodic economic statistics that provide insight into the performance of an economy during a certain period. Any change in the macroeconomic conditions can trigger strong movements in the financial markets, and that means profit opportunities for currency traders. News trading is the process of linking macroeconomic events to strong price movements.

Categorizing Economic Indicators by their Release-Time

There are three types based on their timing:

1. Leading Indicator (Before the Economy)

Leading indicators change before the economy changes. A leading indicator can be used as a signal of new upcoming macro conditions. For example, the Consumer Confidence Index and the Home Sales Report.

2. Coincident Indicator (At the same time)

A Coincident Indicator changes at the same time as the economy (i.e. Gross Domestic Product).