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Foreign exchange margin risk completely analyzed

2023/2/25 0:28:47  Classification:   Participation: 8  

The character bestforexrebatetics of the rebatemeaninginforex rebatesinforex cashback forex The foreign exchange market is the worlds largest financial market, covering the rebateinforextrading varieties including spot foreign exchange transactions (also known as spot foreign exchange transactions), forward foreign exchange transactions, swaps foreign exchange transactions, foreign exchange futures transactions, foreign exchange options transactions best forex rebate so on the average single day trading volume of up to 1.9 trillion U.S. dollars, including OTC derivatives transactions for 1.29 trillion U.S. dollars (the above data According to the Bank for International Settlements 2004 survey report) foreign exchange transactions are mainly used in two ways: one is the exchange way this way there are fixed trading places, such as Germany, France, the Netherlands and other countries foreign exchange, as well as foreign exchange futures trading Chicago Mercantile Exchange; these exchanges have fixed business hours and places of business another is the OTC way this way is 24 hours operation. There is no specific trading place, the two sides rely on the telephone or network and other communication equipment to reach a deal OTC way is the main organization of the foreign exchange market it is different from the traditional sense of the market, and does not have a central trading place, the vast majority of transactions are carried out by telephone or network; this no unified site of the foreign exchange market is called the market without the field global foreign exchange market every day nearly two trillion dollars Trading volume, is in this neither the supervision of the central clearing system, nor government control to complete the clearing and transfer of the rise of electronic trading early TC trading mainly by telex, telegraph and telephone and other means of communication to achieve with the development of computer technology and network technology, electronic trading began to emerge, and triggered the foreign exchange trading mechanism and foreign exchange trading technology changes in the past only open to interbank traders The real-time quotes are now available through the network at your fingertips, foreign exchange pricing has become more transparent, the information is more efficient at the same time, electronic trading has also changed the characteristics of the foreign exchange market and trader behavior, the speed of light transmission of information makes the herding effect in the international scope of the instantaneous transmission, intensified the day-to-day volatility of the foreign exchange market Electronic trading has two main models, one is to serve institutional customers of the ECN ( electroniccommunicationsnetwork (ECN) model for institutional clients; the other is to serve the retail customers of the inquiry (Dealer) and a single market maker (Marketmaker) model we usually contact the foreign exchange margin brokers usually use the latter trading method ECN for banks and institutional investors ECN is ECN is an electronic trading network, where traders orders are listed directly and anonymously on the network, and the buying and selling prices are generated by all traders participating in the ECN, so the prices on the ECN are the real market prices ECN operators generally do not participate in trading but only receive trading commissions, so they will provide the best possible service to their clients EBS and Reuters are proprietary ECN systems for top banks. EBS and Reuters are proprietary ECN systems dedicated to the top banks They basically occupy nearly 70% of the market share of spot trading in the international foreign exchange market EBS mainly provides electronic trading platforms for trading in USD, EUR, JPY and CHF, while Reuters mainly provides services for trading between GBP and other currencies With the development of Internet technology, ECNs serving small banks, large investment institutions, hedge funds The future direction of ECNs will be to combine the advantages of the exchange model and the OTC model to provide customers with a better trading experience. The FXMarketSpace that Reuters and CME are going to establish represents the trend of OTC foreign exchange trading, FXMarketSpace is said to be the worlds first central clearing foreign exchange market; through the central clearing, it will reduce the credit threshold and non-market risk of trading, making more small and medium-sized investors can participate in it Foreign exchange margin trading Model: inquiry, single market maker Although the ECN model is more fair and transparent, but these real foreign exchange market threshold is high, usually only open to large trading volume and high net worth of financial institutions, so individual investors mainly through the foreign exchange margin or domestic real foreign exchange spot trading due to the domestic real spread high, one-way trading, no capital leverage and other shortcomings, experienced foreign exchange investors will usually Choose foreign exchange margin trading currently, in the domestic more well-known U.S. foreign exchange margin brokers including FXCM, IFX, CMS, etc. Unlike the ECN bidding model, foreign exchange margin trading is usually the use of inquiries and a single market maker model individual investors face a single pair of home for inquiries and trading, the fairness of the offer depends on the integrity of the broker broker itself is a market maker, they generally first Aggregate and filter the price of the bank or ECN, and then add their own profits and then quote to customers, so customers are actually trading with market makers (on the ECN is trading with anonymous traders) customers see and trade is not the real price of the market, and the execution price of the transaction is determined by the foreign exchange broker, so it is not surprising that the transaction price is often in favor of the broker customers single After entering the market makers system, first of all, the internal hedging between long and short positions, and then the rest of the net position to the bank or ECN they are attached to hedge, can also be partially hedged or simply not hedged, which belongs to the betting category betting is that these market makers do not get all the net position to the ECN or bank to hedge for example, a foreign exchange broker received a customer 1000 hand (foreign exchange trading units, usually refers to 100,000 units of the base currency) to buy EUR / USD orders and 800 hand sell EUR / USD orders, then internal hedging after the remaining 200 hand EUR / USD net long position, but the company is willing to assume the risk of market volatility of this part of the position, and did not put the 200 hand EUR / USD net long position to the bank or ECN to do a reverse This is called and customer betting in the U.S. laws and regulations do not rigidly specify how to hedge risk, which depends entirely on the traders own risk control strategy If the customers single can be fully hedged out in a timely manner, then the market maker almost do not have to bear the additional market risk, the income obtained is more stable but the reality of market makers will generally more or less bet, which increases its own risk The existence of this hedging/hedging model means that at certain times (such as when major U.S. data is released, or when market prices fluctuate dramatically), you may regularly be unable to connect to the brokers trading system for effective and rapid trading, because it is difficult for the broker to transfer market risk in a timely manner within a limited cost range, so simply limit the customers orders or use some Other ways this particular time period often appear single can not be completed in the domestic bank foreign exchange trading phenomenon is also prevalent in the high-risk OTC market 2004 in the oil incident and the 2005 State Reserve copper incident but has the same thing, both investors are involved in high-risk OTC trading (OverTheCounter abbreviation, both over-the-counter transactions, also known as over-the-counter Unlike the centralized trading on strictly regulated futures exchanges, individual clients in the OTC market trade directly with a counterparty, a peer-to-peer trading method, and there is no unified clearing agency to support and regulate such trading. OTC trading in the non-market risk is high, insider trading is widespread and easy to be manipulated by the counterparty; in the case of CNOOC and the State Reserve copper incident, the outside world has suspected that the trading counterparty has used unethical means to round up Chinese traders because of the OTC market itself and the operation characteristics of the lagging financial regulations of various countries, decided that it is subject to rather limited regulation; for example, insider trading in securities trading is illegal, but in the OTC foreign exchange trading, banks use the trading information of large customers and other insider information for their own trading interests is not considered illegal Lack of regulation of foreign exchange margin trading U.S. foreign exchange margin brokers have not formed an effective regulation, mainly because the relevant legislation lags behind the U.S. futures market regulator U.S. Commodity Futures Trading Commission ( CommodityFuturesTradingCommission (hereinafter referred to as CFTC) based on the law: CommodityExchangeAct (Commodity Exchange Act of 1936, hereinafter referred to as CEA), CommodityFuturesTradingCommissionAct ( Commodity Futures Trading Commission Act of 1974, hereinafter referred to as CFTCA), CommodityFuturesModernizationActof2000 (Commodity Futures Modernization Act of 2000, hereinafter referred to as CFMA) gives the CFTC sole jurisdiction over futures and commodity options traded on exchanges and over-the-counter, and also gives it the right to regulate Market intermediaries, such as futures commission merchants (FuturesCommissionMerchant, hereinafter referred to as FCM) However, over-the-counter foreign exchange transactions are not regulated by the CEA, unless they involve future delivery on a commodity exchange CFTCA gives the CFTC exclusive jurisdiction over futures contracts, but the regulation of foreign exchange contracts does not give a clear As the antiquated bill has long been unable to adapt to the contemporary rapidly changing financial derivatives market, so the Clinton administration in 2000 enacted CFMACFMA to a large extent to relax the restrictions on OTC derivatives trading, but the CFTCs jurisdiction over OTC foreign exchange derivatives is only limited to futures and options products, forward and spot foreign exchange contracts are not under the jurisdiction of the CFTC From the above can be seen, the United States these laws were initially set up for the regulation of the futures industry, which did not take into account the regulation of foreign exchange spot trading, so in the United States foreign exchange brokers for foreign exchange margin trading customers will not be effectively protected Potential risks of foreign exchange margin trading 1, capital security The most important issue in trading is capital security NFA in the OTC foreign exchange trading Retail customers in the official promotional materials clearly pointed out: OTC foreign exchange trading without the guarantee of the clearing agency, the customer for the purchase and sale of foreign exchange and contract deposits are not protected by any regulatory body, and in the event of bankruptcy is not given priority; even if the customers funds deposited by the broker in a bank account with FDIC insurance, in the event of the brokers bankruptcy of the customers funds are not protected (see the official website of the NFA Even if RCM, like RefcoFX, is registered and regulated by the NFA and CFTC, the funds of domestic clients are not protected, and are not even considered clients according to the provisions of the U.S. Bankruptcy Code, equity clients or commodity However, since FX spot is neither a stock nor a commodity, FX spot clients are neither stocks nor commodities.

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