TradersClass

At long last ESMA has set the day.

From 1st August 2018, retail traders will have to pony up more margin. Gone are the days when brokers were falling over themselves to give the 'Best', lowest, margin rates that allowed almost anyone to control a big slice of the pie with a miniscule account.

I rember the story of the guy who opened an account on a Thursday with £8,000. By close of play on Friday night, he had run it up to £100,000 plus, on the Dow. Margins were crazy low and he was able to use the open trade profit as more margin! By close of play Monday the day put in a modest correction. Result, he was wiped and owed the broker money which they enforced. A great introduction to spread betting.

All that is no longer possible, illegal within ESMA. The new regs take us back and beyond how it was when I started trading Forex, 50:1 margin was the maximum anyone offered, in line with US regulations. Now Forex is 30:1.

This is the gist:

For major FX pairs, leverage is adjusted to 30:1 (3.33%).

Suppose GBPUSD is trading at 1.3200, £1 per pip will be 13200 * 3.33% * 1 = £ 440. At £10 per pip it's £4,440

For indicies, leverage will be adjusted to 20:1 (5%).

Suppose WS30 is trading at 24000, £1 per pip will be 24000 * 5% * 1 = £ 1200. At £10 per pip you will need a minimum of £12,000.

Unrealised gains can no longer be used as margin and the broker has to close out your position if the market runs against you and your margin funds drop by 50%.

One of the spread betting companies admit that the old system encouraged over trading (punters lost money has corrections took them out and so spraed bet companies made huge profits). They now admit that clients who trade well within their account size are more succesful.

So what to do now??

Under trade under trade!

Mario had some fun with the markets yesterday.

I had several members asking for my take on the Euro/Dollar reversal
yesterday as a result of the ECB grenade thrown into the markets.

That was all down to Mario Draghi, not following on from Powell on
Wednesday and tightening or at least accelerating tapering. The market was
convinced he would, then the bombshell was saying no rate rises until 2019
caught the market on the wrong side of trades.

The positives are that that created several Key Reversals in the EUR pairs,
CHF and Cable. The Euro hovered at the point of reversing giving some time
to get re-positioned.

From here, the dollar weakness has been reset to strength following through
on Powell's Wednesday words that they are convinced the US economy is
strong. Mario's actions confirm he believes Europe's to be weak. The
consequence of this is that we could well get some decent trends in the
likes of EURJPY and AUDUSD that was already the weak currency, etc.

That's for the next week or so. Today, Friday 15th, is profit taking day so far with
modest rallies across the board, so now is the time to look for rallies that might
give much better short entries.

The consensus is the Federal Reserve, at it's June FOMC meeting Wednesday 13th, will confirm the next US interest rate increase, from 1.75 to 2%:

The consensus, 'dot' plot and forward guidance is as plain as day. But, today, the bond market just had a hissy fit...

The standard 30 year US T Bond has been tumbling down this year. Interest rates do the opposite of course, moving on up as bonds slide. But just look at the chart. The chart bottomed on May 18th, rallied then tumbled again, until today, June 7th.

The 4 hour chart shows a major key revesal day, lower early in the day then higher than yesterday. Key reversals (or the candle version, Bullish Engulfing) are one of the strongest one day signals in the market.

What does this mean?

Maybe nothing more than traders liquidating their previous short position profits, just in case something unexpected comes out of the Fed minutes.

Or - the market just got the idea the Fed will change it's mind and delay the increase. The dollar will tank and stock markets will soar even higher. Stranger things have happened, just when everyone least expect it.

The NASDAQ takes a 500 point tumble...

Markets thrive on uncertainty and that's exactly why these false break-outs work so well. The majority expect the new high to be just the start of the next trend wave. The warning signs were there, a combination of divergence, volume, wave count and Fibonacci

We just needed price action confirmation and this started with the bearish engulfing candle at the high. The next few days neatly set up the sell level as the Colour Charts confirmed. Then, tumble, it did.....

Where we are now is in the happy position of sitting on a very healthy profit. However, there are now warning signs of a possible rally that could evaporate those profits.