FOREX: insider dealing

In the last half of the day within the FOREX market often behaves «inadequate»: ignored forecasts and recommendations of veteran analysts, market sentiment for no apparent reason could dramatically change for the opposite, etc. It seems that the market is the world's leading currencies in the shallow horizons of investment is a special, hidden from the understanding of the majority, their lives. At the same time over the past year has seen a dramatic increase in the number of participants in the foreign exchange market, which is connected, not least, with the growth of its profitability and risk reduction

Who is the insider?
It is believed that insiders at FOREX - the elite of currency traders. This tends to managers of banks, which often have information on major client applications unavailable ordinary bidders. Thus insiders can obtain huge profits and avoid big losses, before the bulk of traders will be able to correctly interpret market signals.

This terminology is adopted from the U.S. stock market, where the role of insiders of a corporation are shareholders, who bought more than 10% of its shares, as well as all its topmenedzhery. The Commission on the U.S. Securities and Exchange (SEC) has banned the insiders buy or sell shares on the basis of confidential information that they possess. To minimize the possibility of insiders illegal transactions, the Securities Act of 1934 requires them to provide information on all direct and indirect investments. As an indirect investments are considered assets that are controlled by insiders while in the possession of another legal entity such as a family member, trust or company to which the insider (www.k2kapital.com).

Think about the term «insider dealing», many may remember about the scandals at the end of the last century, associated with a number of top managers of Western corporations. They used them accessible only to sensitive information on the economic status of management companies and doing their business. Or, using data on large customer applications from banks to buy or sell currencies, which often allow to predict the trading ranges of the studied currency pair within days.

However, if the approach to the problem of integral, there is no need to worry: insider dealing, in most cases, the law, but possession of information about it can bring noticeable benefits to traders. Dealing insiders in itself is usually a reason for entering the market. In addition, it could be a valuable hint to select the direction of the entrance (buy or sell).

In this sense, insider trading is an essential component of proper understanding and forecasting the foreign exchange market. And no matter what segment of the financial markets is this game, because a strong correlation between the major components of the global financial market is all put in its place.

For example, in buying up large amounts of shares of American corporations, a member of the Dow Jones. The latter begins to grow. And after him, as a rule, strengthened the U.S. dollar - among other things, excluding the possibility of cross-sectoral arbitration, which would allow certain groups of traders earn on the market without any risk. To date, we can state that the stock market insider dealings investigated sufficiently. It shows that the surplus of transactions undertaken by them in shares of their companies, has more than average. This is understandable: traders with more complete information about the prospects of the company, of course, take more accurate decisions, trading its securities. Therefore, buying and selling of shares insiders - are important signals that follow-up is the right way to get a considerable profit when the shares rise or reduce losses to a minimum when they fall. Here is information about the insider dealing of foreign exchange market is extremely small. Nevertheless, by analogy with the stock market may be noted that insider tips can greatly enhance the impact of trades on the FOREX.

Not every word silver
Many analysts warn that not all «filed» insiders signals really are of great importance. Thus, the purchase of currency for the performance of futures or option contracts, as a rule, has no effect on its dynamics. If insiders are buying the currency when it reaches new minima, it encourages them to do this simple common sense. However, if they hold a long position once the currency has already begun to rise, traders should immediately withdraw from the short positions that have not yet been further appreciation. Dealing insiders are often conducted on the basis of information known to them confidential information about a particular currency pair, more precisely, on large warrants to buy or sell. The result of their execution, of course, will find its reflection in the evolution of asset prices studied, but not immediately. In addition, there are many ways to interpret graphs, figures and statistics. Similarly for different ways to interpret the financial news. And who can know more at this particular moment on the situation of a currency pair - the practice of analysts or the market as represented by the top managers of banks? In most cases, senior managers and directors to better see the short-term outlook for future price changes. And if a private trader to be admitted to this exclusive information, his trading in FOREX within days become more meaningful and yield greater profitability.

Boom in Australia
Since 1972, when currency derivatives have become tools in the financial market, customer base spot FOREX market had increased, since it was possible to obtain the maximum profit with a significant reduction in risk. In those days on the interbank currency market could really deal with large market capitalization, investors - primarily because of the small banking arm. For small private investors, the doors of international interbank spot FOREX market was virtually closed.

With the liberalization of the European and recently the Australian and New Zealand law, traders exchange spot market today could be investors, and with fewer resources. However, the main customers of this market - the banks. In the past two years, the growth of capitalization of the Australian and New Zealand FOREX segments averaged 20% per year. At about the same proportion increasing and the number of selling their private traders.

To some extent this is due to the crisis of world economy and the dominance of the bears on the major segments of the stock market. We know that when prices of shares on the stock market falling, many investors get rid of desheveyuschih assets. In order not to lose its customer base and attract new prospective players, different brokerage companies, banks and other financial institutions began to offer new tools and ways of investing, including currency trades. In 2002, one of the most effective asset for many investors was the currency. In Australia and New Zealand's trading on the FOREX is booming: in the first half of 2002, the capitalization of the Australian integrated spot FOREX market has increased by 20%. This is the explanation - for the past two years, maintaining good conversion operations helped to keep capital in the bear trend in most other segments of the financial market. Superiority of currency traders to the participants of other segments of financial markets and reflected in a more skilful use of insider information. Financial results for the currency dealings have been noticeably better, even compared to the various index funds. As an example, consider the events of 4.09.03 year in foreign exchange markets and compare the quality of insider information leading to forecasts of analysts.

Euro and dollar against the yen
Figure 1 provides a time schedule rate USD / JPY.

We see that the dollar / yen has grown to 03:00 GMT 4.09.03, with the level of 115.75 to 116.85, ie, at 110 points. Analysts noted that this jump is due to currency intervention by the Bank of Japan held to support domestic exporters. Until then the market yen in the selected investment horizon steady bearish trend: the curves moving averages are directed down, the band also recorded Bollindzhera downward movement. All three are listed in Figure oscillator signals are also served at the sale. From a fundamental point of view of the trend rate of strengthening Japanese currency gained new momentum last week after finding that in August, the Japanese authorities did not carry out currency intervention.

The intervention of the Central Bank of Japan
A distinctive feature of the currency intervention is that, in addition to the U.S. dollar, the Central Bank of Japan in a few large volumes purchased and the euro (Fig. 2). In doing so, the euro / yen up from 125.30 to 126.75 marks, ie 145 points. It is also worth paying attention to the fact that by early intervention in the market and EUR / JPY completely dominated by the bear: three curves of moving averages - mA (5), mA (21) and mA (100), sent down, the band Bollindzhera - cool down . All three are listed in Figure oscillator signals are also served at the sale.

After completion of the intervention rate of USD / JPY went down in the Flat and was there almost the entire remainder of the day (Fig. 1). Until 13:00 researched the price of the day a pair of EUR / JPY at scan time slightly before the curve доросла mA (100) - a strong level of resistance, then start slowly lowered down to the goal of 126.30.

Against the backdrop of weakening yen currency remaining in the period under review remained stable in limited ranges. Rate euro / dollar was established within the 1.0810-1.0850, pound / dollar - 1.5665-1.5710. Attention was riveted on the analysts' economic calendar: waited for news of the next meeting of the Governing Board of the European Central Bank, to discuss the level of basic interest rates in the euro area.

Most investors agree that the interest rates in the E12 will be left unchanged. Number of applications for unemployment benefits in the United States during the week to August 30, projected at 393 thousand (previous 394 thousand). Out of these indicators as a whole did not change market sentiment on the euro / dollar: position - down. In addition, the projections of the leading analysts also take into account news from the productive sectors of the European Union and America: the index of industrial orders in Germany in July (-0.2% forecast for the month, the previous value of +2.3% for the month, -3.5% for the year), clarify the meaning index of labor productivity in the United States for the second quarter (forecast +6.3%, pre: +5.7%), the index of business activity in the service of Institute of Management (ISM services index) in the United States for the month of August (forecast 62.2, previous 65.1), the index of industrial orders (Factory orders) in the United States for July (forecast +0.9%, previous +1.5%), and the index of money supply M2 in the United States during the week to August 25 (previous value of + $ 43.5 billion). This news likely to strengthen the dollar than the euro, as showed a further recovery of the U.S. economy and have a positive impact on the price dynamics of the major financial instruments.

And finally, developments in stock markets pushed the world of currency traders to buy dollars. Indeed, by 10:30 AM EDT Tokyo Stock Exchange index Nikkei fell 68.74 points (-0.64%) and closed at 10646.95 urovne. Yield 10-year Japanese government bonds also fell in comparison with yesterday's closing at 0.135%.

The index of the Frankfurt Stock Exchange Xetra DAX fell 21.16 points (-0.58%), and by this time was 3626.35. The index of London Stock Exchange FTSE 100 moved down, and by the end of trading session, fell 13.30 points (-0.31%), to close at 4248.80. The index of the Paris stock exchange CAC 40 fell by 12.09 points (-0.35%) to 3410.69. In contrast to the major U.S. futures indices (Dow Jones, NASDAQ and S & P), traded on the COMEX, at that time showed a steady increase.

It is therefore not surprising that early predictions of most currency analysts 4.09.03 was released, aimed at strengthening U.S. dollar. To cite as an example of the recommendations of Citibank (at 09:09 4.09.03 town), which is a treat with great care: EUR / USD. Expected Range: 1.0700-1.0850. Sell 1.0850, stop 1.0870. The purpose of 1.0700. USD / JPY. Expected Range: 115.50-116.40. Sale 116.90, stop 117.90. The purpose of 115.00. Around the same advice given and the other grand market FOREX - Deutsche Bank. However, by 10:40 AM EDT on the market has insider advice: with a probability of 0.6 to buy Euro against the U.S. dollar, and with probability 0.8 buy euro against the yen. This was clearly defined trading ranges, the study performed by the example of the currency pair EUR / USD.

Expected Range: 1.0820-1.0950. Buy 1.0820, stop / reverse 1.0770 to 1.0720. The purpose of 1.0950. With further growth of the euro and 1.0960 of Perforation level rise in long positions in order to 1.1020 and even 1.1050.

It should be noted that the information I shared with two foreign exchange traders, who asked not to call them names. One of them venture to open long positions on the euro from a specified level, which enabled him later to earn 120 points for a few hours. As seen in Figure 3, which provides a time schedule of rates EUR / USD, this insider information does not confirm until 13:00 GMT. At that time, the mood of the market owned by the leading foreign exchange analysts. In doing so, the euro / dollar «failed» just below the 1.0820 level of purchases.

Inside, however - a strong thing. Neglect them extremely dangerous. After 13:00 GMT on the market of euro bulls have the upper (Fig. 4). Exchange EUR / USD rally has committed to these goals, then its movement slowed up because insiders have begun to record profits.

Since the launch of the euro rally was mainly due to insider trading, then later exchange analysts were still persisting in its recommendations to stand in a short position on euro. Even Deutsche Bank in a note on the prospects for the dollar, having to top the U.S. session (17:35 AM EDT 4.09.03), the indicated that the next price objective of the U.S. are inextricably linked with the state of the American economy.

«The economy is gaining course, is precisely what investors have been waiting for. Therefore, the growth of the dollar is quite predictable. But how long it will continue - will no longer depend so much on the economy, but rather on the willingness of investors to invest in the United States. However, the economy of Europe also has good chances of growth in 2004, so the euro could play part of the losses », - told the experts the bank.

However, in the medium term, they have continued to recommend that the open short position on euro / dollar. Thus, in certain moments of insider information can be a good tool for optimization of the trading in the market FOREX.

Vasily Yakimkin