The Chicago Mercantile Exchange announced earlier in the summer that following the expiry of the September 2010 contracts, e-micro currency futures contracts would change to being physically delivered:
CME FX will be migrating the E-micro Forex futures contracts from being cash settled to physically delivered. The December contract will be listed for trading on Sunday, July 25 (trade date Monday, July 26). This will enable active traders to carry larger positions in the E-micros and easily offset them with our standard size FX contracts – potentially generating more liquidity and tighter spreads in the E-micro Forex futures contracts.
Most of those September contracts expire today (USD/CAD does so tomorrow), and so from now on all e-micro currency futures contracts will involve physical delivery instead of cash settlement. CME explain the difference between cash settlement and physical delivery as follows:
With cash settlement, there is no obligation to make or take delivery of currency. At the expiration of trading there is one final mark to market, which results in a profit or loss to be credited or debited from a trader’s account. With physical delivery there are currency flows at delivery and traders make and receive deliveries of currencies. However, prior to expiration, traders either need to roll their positions to the next quarterly contract or offset their positions (if they are “short,” by buying an equal number of contracts in the same currency and contract month, or if they are “long,” by selling an equal number of contracts).
More on CME E-micro Currency Futures Now Physically Delivered
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If you've been following the story about the new CFTC regulations regarding retail forex in the United States you may well have come to the conclusion that for some reason the CFTC thinks "on-exchange" trading is better than "off-exchange" (OTC) trading. Last year the Chicago Mercantile Exchange (CME for short) introduced smaller currency futures contracts designed to provide an exchange traded product that might appeal to the retail forex trader.
Recently the CME have taken a couple of extra steps to try and attract retail traders onto their exchange. First of all they have just announced that once the CFTC approves the small print they will be introducing a new e-micro gold futures contract. Like the e-micro currency futures, the new gold contract will be one tenth the size of the standard CME gold contract. That means it is based on the price of 10 troy ounces of real solid precious gold. Unlike spot forex (and as their name implies) futures contracts expire at some specified date in the future. If you went long one standard CME gold futures contract and held it until expiry you would receive a piece of paper proving you were now the proud owner of one serial numbered 100 oz bar of gold. This process is referred to as "physical delivery", although in this case your bar of gold doesn't arrive on your doorstep accompanied by an armed guard! Once you've bought it you then have to pay a depository to look after it for you in their vaults. Physical delivery of 10 oz of gold is even more complicated. If you were to hold an e-micro gold contract to expiry you would receive a different piece of paper, known as an Accumulated Certificate of Exchange (ACE for short). Once you have ten of those you can then swap them for a different piece of paper. As CME put it:
Ten ACEs can be converted into an official COMEX licensed gold warrant, representing an actual serial-numbered bar of gold.
Alternatively you could do what most people do, and make sure you close your long position before expiry, hopefully at a profit. By now you may be wondering what happens if you inadvertently forget to close a short e-micro gold futures position before it expires. In that case you have to find a way of delivering one tenth of a bar of gold to whoever bought it from you!
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The CFTC final rules on the regulation of retail foreign exchange have now been officially published in the Federal Register. At the same time they have also authorized the NFA "to process and grant applications for initial registration, renewed registration and withdrawals of retail foreign exchange dealers (RFEDs) and their associated persons (APs)", effective from September 10th.
The CFTC has previously authorized NFA to perform the full range of registration functions with regard to FCMs, IBs, CTAs, CPOs and their respective APs, including granting applications for initial registration and renewed registration; enabling withdrawals and issuing temporary licenses to eligible APs; and conducting proceedings to deny, condition, suspend, restrict or revoke the registration of existing registrants or applicants for registration in each category. By today’s order the Commission authorizes NFA to perform these functions with regard to RFEDs and their APs.
Retail foreign exchange dealers (‘RFEDs’) are a new class of regulated entity permitted by the new regulations to act as counterparties to off-exchange retail forex contracts. As the CFTC puts it:
RFEDs are counterparties not engaged primarily or substantially in the offer and sale of exchange-traded futures.
In plainer English, if your forex broker doesn't allow you to trade futures as well as spot forex they have until October 18th to get registered with the NFA as an RFED, or they won't be legally entitled to accept your orders. This means the brokers themselves now have to join the queues of IBs waiting to get registered with the NFA since September 2nd. As you can see on the NFA website even the biggest names are having to go through this process. FXCM's application to become an RFED has been pending since September 8th, for example.
The new regulations also:
More on NFA Starts Registering Forex Brokers and "Solicitors"
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At long last the CFTC have revealed what changes they have in store for US retail forex traders. Their new regulations will come into effect on October 18th, and according to CFTC chairman Gary Gensler they:
Will help protect the American public in the largest area of retail fraud that the CFTC oversees: retail foreign exchange. All CFTC registrants involved in soliciting and selling retail forex contracts to consumers will now have to comply with rules to protect the investing public.
In the CFTC factsheet about the new rules they highlight the following:
- Maximum leverage of 50 to 1 for majors, and 20 to 1 for other currencies (It's left to the NFA to decide what counts as a "major" currency, and the NFA is also free to impose further reductions in leverage)
- Forex Introducing Brokers are required to register with the NFA, and either to meet the minimum net capital requirements applicable to futures and commodity options IBs, or to enter into a guarantee agreement with an FCM or an RFED
- Forex Brokers are required to disclose on a quarterly basis the percentage of "non-discretionary retail accounts" that are profitable, and to keep and make available records of that calculation. Initially brokers will need to provide this information for the preceeding year.
More on CFTC Reduces Forex Leverage to 50 to 1 (Amongst Other Things!)
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FXCM have made a couple of announcements recently about new developments they've introduced to make it easier for their customers to start automated trading. First they announced their new Strategy Trader platform with quite a bit of razmatazz, then with rather less fanfare earlier this month they invited their clients to get involved in open beta testing of their new products via FXCM Labs. It's said that these things come in threes, and FXCM have just quietly revealed via the FXCM Labs forum that starting on Monday users of the venerable Trading Station platform will be able to program their own automated trading strategies too.
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I was browsing around the Boston Technologies website yesterday for a very different reason, when I made an interesting discovery – the Boston Technologies History Center. As we reported recently, the historical data you can download into the MetaTrader 4 History Center seems to have developed some big gaps recently. If you're new to MT4 backtesting, or if you haven't been religiously logging in to your account regularly to keep your data up to date, this might well cause your backtest results to be rather misleading. This problem has affected the backtesting of some members of our Community, and they now have another solution to their difficulties apart from waiting for me to export some of my own data from MetaTrader!
More on Boston Technologies History Center Rescues MetaTrader Backtests
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We've recently improved our MetaTrader 4 London Breakout expert advisor, and now we've released a port of that "robot" to MetaTrader 5, using the new object-oriented features of the MQL5 language. You can download the MQL5 source code from our Community forum.
Needless to say we've also fired up the MetaTrader 5 strategy tester and run a couple of backtests. This sort of strategy is traditionally supposed to work best with Cable, but that's not what our initial tests show. Here's the backtested equity curve using the default input settings for GBP/USD:
More on Object-Oriented London Breakout Robot Available for MetaTrader 5
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After a variety of trials and tribulations along the way the Wall Street Reform and Consumer Protection Act, now officially renamed Dodd-Frank after its two sponsors, was finally signed into law by US President Barack Obama on July 21st. According to The Economist magazine:
Dodd-Frank is riddled with messy compromises.
not least of which is:
There are some glaring omissions. There [is no] meaningful tidying-up of the tangle of federal regulatory agencies.
and there is also:
A nonsensical compromise to allow Senator Blanche Lincoln, author of a proposal to force banks to spin [banks’ swaps desks] off, to save face. Interest-rate, foreign exchange and high-quality credit swaps can be retained.
So the banks that caused the financial crisis will still be able to deal in forex and swaps thereon, but what about the beleaguered retail forex trader? Section 742 of the act (although it doesn't say this in so many words!) leaves that side of things to the tender mercies of the CFTC:
More on The Countdown Has Begun for the Retail Forex Revolution
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MetaQuotes announced yesterday that from now on the source code for MetaTrader 5 expert advisors written by 3rd parties (such as the Trading Gurus!) will be made available for download through the MT5 client terminal. To celebrate this fact we've rewritten our latest "Really Random Robot" in an object-oriented style, and uploaded it to the MQL5 Code Base. MetaQuotes have already kindly translated the instructions into Russian for us! We're eagerly waiting to discover how many MetaTrader 5 beta testers download it and try it out. So far today we're up to 16.
Now you might well be asking yourselves at this point:
What on Earth is the point of an automated trading system that simply simulates tossing a coin at the earliest opportunity when deciding when and in which direction to enter the market?
Well the first reason is that it demonstrates a framework for building more complicated "robots", but in the simplest way possible. The second reason is that we think it is actually worth spending a lot of time investigating the performance of trading systems that include some element of randomness in their design. You can learn a lot about the way markets work, and the way "robots" work, by pondering the question "Why?" long and hard. For example:
Why does an extremely dumb trading system that uses the toss of a coin for entries make a profit in some circumstances?
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Thanks to yesterday's disappointing Non-farm Payroll numbers the greenback fell and my troublesome sell limit order at European broker ActivTrades finally got filled. Consequently my new Interbank MetaTrader 4 micro-lot account with them is now fully funded, and open for business. As you can imagine, I have had one or two long discussions with ActivTrades over the last couple of days. During the course of those they pointed out to me that enough of their liquidity providers are now willing to quote and fill a 1K trade that it had now proved possible for them to introduce micro-lots on their "Straight Through Processing" (STP for short) MetaTrader Interbank accounts. When I enquired what "enough" meant in this context, the number three was mentioned. Unlike their Standard account, there is no "averaging algorithm" inserted by ActivTrades between you and the banks on their Interbank account. Instead they just add a bit to the spreads they are quoted, since they have to earn a crust somehow just like the rest of us.
Swiss bank Dukascopy have been providing ECN micro-lots direct to retail clients since the start of this year, although they don't call them that, and what's more they don't provide them via MetaTrader either. ECN stands for "Electronic Communication Network", and such an account allows you to place your orders inside the currently quoted spread, if you so wish.
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