Golden Brokers

Jan 05, 2021

  • Blog

Looking Back to 2020 & What’s Next for 2021?

The year 2020 will go down in history as one of the most memorable and unpredictable years of our lives. The pandemic and resulting health crisis upended everyone, creating unique challenges for individuals, businesses, and governments. From a financial-markets perspective, 2020 was a year of unprecedented change but eventual resiliency.

In this new year, we hope that the light at end of the tunnel is brighter for economic recovery with ongoing rollout of coronavirus vaccines and hopes of bigger fiscal and monetary supports. Major market indexes are trading near record highs, reflecting a positive 2021 outlook, an outcome that was hard to envision during the early days of the pandemic.

While it is tempting to want to forget this year, the change of the calendar presents an opportunity to reflect and review some of the milestones of 2020. The summary done below is of course, not enough to cover all of 2020 market, but here are some highlights of the up and down that defined the economy and the markets over the past 12 months.

STOCK MARKET

2020 was a year that was weighed down by a pandemic and a tumultuous year that marked both the end of the longest bull market and the shortest-lived bear market ever, nevertheless ended positive overall for the stock market.

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Wall Street's major indexes rounded off 2020 with strong gains as a wave of monetary stimulus and promising developments on the vaccine front helped the indexes recover from their sharpest contraction in decades.

The tech-heavy Nasdaq, which was the first among Wall Street's main indexes to turn positive for the year, noted its best yearly performance since 2009, with majority of gains led by FAANG stocks (Facebook Inc, Apple Inc, Amazon.com Inc, Netflix Inc and Alphabet Inc).

The S&P 500 index is on the cusp of a nearly 16% annual gain, after trillions of dollars in unprecedented monetary and fiscal stimulus measures, along with positive vaccine developments have helped the S&P 500 bounce back more than 70% from its late-March trough.

Japan's Nikkei share, meanwhile, on its last trading day of 2020 jumping to a 30-year high on Tuesday.

Shares in Europe and the UK slipped for the year, partly due to the uncertainty of the Brexit trade accord and the increasing number of the coronavirus cases in the regions. The UK market also edged lower as England extended its toughest coronavirus restrictions as the new variant of the virus emerged in the country.

The see-saw year marked by the worst selloff since the 2008 financial crisis and then the second-best annual advance of the past decade, as the MSCI benchmark gauge for emerging-market stocks is trading at a record-high valuation, to end the year about 14% higher, having surged almost 68% since its March low.

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2021 sector outlook - Looking ahead, many Wall Street analysts have a positive view of three equity sectors: energy, healthcare, and information technology. Those are the sectors that had the highest percentages of “buy” ratings from analysts, as of late December, according to FactSet. Those with the lowest percentages of buy ratings were real estate, consumer staples, and financials.

 

OIL SECTOR

Global crude oil markets have lost about a fifth of their value in 2020 as strict coronavirus lockdowns paralysed much of the global economy, but prices have rebounded strongly from their lows as governments rolled out stimulus. Though, the rebound still left Brent down around 21.5% for the year, and WTI 20.5%.

Brent and WTI have more than doubled from decade-lows seen in April, marking the steepest drop since the Gulf War in 1991, putting past a year which marked the first negative prices for WTI that shocked investors globally when countries went under lockdown to curb the spread of COVID-19. The recovery from the pandemic will accelerate once a vaccine is widely available, further supported by ongoing fiscal and monetary stimulus from governments around the world.

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CURRENCIES

Against a basket of currencies, the dollar index was last around 89.50, having touched its 2-1/2-year lowest since April 2018. That left it down more than 7% on the year 2020, and no less than 13% on the 102.99 peak hit during the market mayhem of mid-March. The next target for the index is at 89.277 and then 88.251, which was the absolute low in 2018.

Many investors are already looking ahead to a new government under Biden when he is sworn in on Jan. 20. A Democratic and Joe Biden win in the 2020 U.S. election expected to further trigger dollar weakness, as investors assume it would lead to higher stimulus spending which would in turn boost market sentiment and weigh down on the dollar.

Another negative factor for the greenback is expectations that the U.S. Federal Reserve will keep interest rates low for an extremely long time, as announced in the last November FOMC meeting. In contrast, the European Union runs a huge current account surplus, largely thanks to Germany, so there is a natural inflow to euros through trade.

The prospect of a brighter 2021 drove higher on the non-dollar currencies, and with that, set the dollar on a downward course, slipping broadly as it sold for just about everything else, pushed several currencies, as well as Bitcoin to milestone highs.

Bitcoin accelerated its Q4 surge as the price jumped around 16% for the week and eclipsed $34,800 on Sunday for the first time. Bitcoin roughly quadrupled in price in 2020, as it started the year at around $7,200, amid surging interest from larger investors who variously see the cryptocurrency as a hedge against the threat of inflation, a risk-on asset, and a future payment method. The digital currency trades on numerous exchanges, the largest of which is Coinbase, itself preparing to go public to become the first major U.S. cryptocurrency exchange to list on Wall Street.

 

GOLD

Gold, regarded as a hedge against inflation and currency debasement, has risen over 24% in 2020 with the dominant government stimulus globally and vaccine narratives is in the driver’s seat.

The price of gold surged to an all-time high on August 1, to $2,070.48. The spike in the price was as investors were looking for safe havens to park their money, linked to the worsening of U.S.-China trade and political tensions, and the growing investor concerns that an economic recovery from the coronavirus pandemic might be weakening in the U.S. and elsewhere.

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Looking back, 2020 is one of the most unpredictable years of our lives. The COVID-19 pandemic is leaving a long-lasting effect on individuals as well as on businesses. In terms of the equity markets, the year started with a global fear of recession, but eventually showed resilience and is looking to end 2020 on a high, reflecting a positive 2021 outlook.

Going into 2021, some key learnings from 2020 should prove to be useful. Firstly, markets are always forward-looking. While current economic conditions are still affected from the COVID-19 pandemic, investors will always discount future expectations into the capital markets. Secondly, fear creates opportunities. As the volatility index reached a record high in March 2020, the market plunge was immediately followed by strong returns. Periods of indiscriminate selling usually create long-term opportunities to enter the market. Lastly, the power of keeping a disciplined, long-term approach. Systematic investing and rebalancing helped investors navigate volatility this year without having to time the market. Aligning investment decisions with long-term goals rather than the headlines will help investors keep a level head.

With that, we bid farewell to 2020, and we wish all happy investing for 2021.

Apr 12, 2019

  • Education

Forex explained

What is Forex?


Currency trading also known as Forex or FX trading can be described as the currency exchange market. Forex trading refers to the global, decentralized marketplace where individuals, financial institution and companies exchange one currency for another at floating rates which are given by actual market situation. Forex includes all the currencies in the world.

What is the currency pair?


A currency pair is the quotation of two different currencies, with the value of one currency being quoted against the other. The first listed currency of a currency pair is called the base currency, and the second currency is called the quote currency.

Currency pairs compare the value of one currency to another — the base currency (or the first one) versus the second, or the quote currency. It indicates how much of the quote currency is needed to purchase one unit of the base currency. For example, let’s take most traded currency pair in world – EUR/USD. If value of currency pair EUR/USD is 1.2500, to get one EUR (base currency) you will need pay 1 USD and 25 cents.

How do I earn money trading currencies?


In Forex market you are betting that one currency will be valued more compared to another currency in the future. Forex is the biggest and most liquid market in the world, so the prices of currency pairs change all the time. For example, if a price of EUR/USD changes from 1.25 to 1.30 and you have one EUR and decide to change that to USD you will get 1 USD and 30 cents instead of 1 USD and 25 cents. Thanks to Forex, you can benefit on a movement of currencies in bigger scale thanks to leverage and margin.
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Jun 17, 2019

  • Education

Are diamonds an investors’ best friend?

Although a dramatic change of demand for diamonds, loved by almost every woman, is not in the nearest predictions, production volume in 2018 was lower than in previous years. Global production of raw diamonds accounted for 147 million carats according to the Statista.com statistics. In 2017 this number was higher – at 151 million carats in total value of more than 14.1 billion USD.

Production down by 4 million carats will probably push the diamonds price upwards in the nearest time frame. When looking at historic price evolution, it can be noted that investments into diamonds brings a very interesting yield over the years. In 1960, the price for 1 carat floated around 2700 USD, in 2015 over 15.000 USD and 31.000 USD in 2016. That represents a 106 percent rise in 16 years.

In the first half of 2018 the prices rose at about 5 to 6 percent level, the growth in the second half of 2018 was influenced by excessive supply of small diamonds with lower consumer performance, in Indian and Chinese markets. The strongest focus was directed onto stones with pink and blue colors, with blue being the color that outperforms all other colors since only a minimum of newly-mined stones reach the market. Only diamonds with blue color that may be found in auctions are those that were mined earlier and whose owners decided to sell. That is why their purchasing power increases.

Russia belongs to major producers, with a volume of 19 million carats mined in the last year. Then comes Australia with 17 million carats volume, Democratic Republic of Congo with 15 million carats and Botswana with 7 million. Russia also owns biggest supplies of diamonds in the world, the volume is estimated to 650 million carats. As a comparison, Democratic Republic of Congo owns supplies in the volume of 150 million carats.

Since 2009 till 2016 diamonds production faced drops in the volume by tens of million carats, when compared to previous times. 2017 was the first year after a major rundown, production increased again and reached the level of 150 million carats per year.

 
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Nov 01, 2019

  • Education

Forex over mobile phone – high profits and high risks

Currency trading markets became the biggest and most liquid markets in the world, they became also a magnet for speculators that bet on financial derivates and use leverages.

Forex (also known as FX) is one of the most used words in the world of financial traders. Forex is an abbreviation of Foreign Exchange and it represents exchanging foreign currency. Its market is the biggest and most liquid market in the world, where currency pairs are traded. Daily trading volumes of carried out transactions peak over 5 trillion US dollars. Currency pairs EUR/USD, USD/JPY, GBP/USD and USD/CHF belong among the main currency pairs that are traded. Most traded currency is US dollar. The markets are open 24 hours a day, 5 days a week.

With forex trading comes inherently the usage of leverage products and financial derivatives, that enable the traders to use multiplication of their profits. Using contracts for difference (also known as CFD) with leverage effect leads to high profits even when the currency pairs move just a tiny bit. But it also leads to high losses, if the exchange rate moves in the other direction than what the trader expected.

For a better understanding of forex trading using financial leverage, we prepared a model case with real currency pair exchange rate movements. The currency pair will be EUR/USD. We will now watch the movement on 25 July 2019 between 2.15pm and 3.45pm. The investor will use 10,000 EUR of his own capital.

The table shows the comparison of results when using various levels of financial leverage. The investor speculated on price growth.

 


















































































A model comparison of CFD trading using financial leverage and the EUR/USD currency pair
EUR/USD 25 Jul 2019 2.15pm- 25 Jul 2019 3.45pm
leverage Value at the opening Value at the closing Change (in %) Investment (EUR) Profit/ Loss (EUR) Spread (EUR)
1:30 1.1106 1.1181 0,67 10,000.00 - 2,010 80.4
1:10 1.1106 1.1181 0,67 10,000.00 -670 26.8
1:1 1.1106 1.1181 0,67 10,000.00 -67 8.04

 

*Charges: the table shows so-called spread, that is a charge of the broker which is calculated from trader’s profit from the difference between buying and selling price. More information about charges and detailed calculations are available in https://goldenbrokers.net/.

 

Let’s assume that the investor opened a position on 25 July 2019 at 2.15pm, when EUR/USD currency pair had the value of 1.1106 and then closed the position on the same day at 3.45pm when the value was 1.1181. In this time frame the EUR/USD value rose by 0.67 %. The investor speculated in the wrong direction. EUR/USD is growing which means a loss for the investor. In other case, he would gain profits.

When trading with EUR/USD currency pair using CFD, the leverage may be applied up to 1:30, our model shows also the situations and profits/losses when traders use lower leverages or do not use leverages at all. In the last case the investor would end up with a loss of 67 EUR. This loss becomes more substantial with using leverages, since 1:10 in this case creates a loss of 670 EUR. The maximal allowed leverage for retail investors, 1:30, creates a significant loss of 2,010 EUR, which means 30 times higher loss in comparison to not using leverage at all. It is true, that the profits work in the same way. If we changed the investor’s speculation direction, e.g. he would speculate on decrease, the trader would earn 2010 EUR when using maximal allowed leverage.

The broker is prohibited by capital markets trading law to allow these products to everyone, due to high risks connected to CFD trading and other leverage products. The broker must firstly asses experience, financial situation and client’s preferences through investment questionnaire. Based on its result he may offer products from the least risky to most risky. A solid investor with experience should not have any problems with CFD trading authorization.

 

Robots start to add to the massive spread of online trading

 

Trading brokering through online platforms is so easy that it destroyed most barriers between individual traders and markets, like forex, that were previously only open to big corporate investors.

But there is still a significant progress ongoing at this easily accessible online trading. “Investment robots” belong among the newest technologies. These robots also trade with forex and create trades automatically instead of the trader. They react to pre-set signals with adjustable risk level. Apart from precision of their work they also have another advantage – they never sleep, which means they can trade in forex markets for all 24 hours a day. They do not yield to tiredness or emotions and save work and effort. Do the robots beat the world’s best investors? Not yet. We should firstly warn everyone from robots, or better said their operators, that promise great profits. All people that have at least basic education of economy know well, that a strategy that is available to everyone cannot bring above‑average profits in long-term to everyone. Human intuition and invention still prevail.

 

 
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Nov 02, 2019

  • Education

Commodities over mobile phone – high profits and high risks

Thanks to the financial derivates almost anyone is able to trade commodities. But it also means that it is not enough to “trust the commodity”, it is also necessary to have knowledge about how modern trading works and what risks it brings.

 What actually is a commodity? In simple words, they are products of equal quality and price that are produced by a large number of producers. That means that commodities are not mobile phones that are different in many characteristics. Commodities are divided into several groups: energy such as oil or natural gas; metals, but not only precious metal such as gold, silver, platinum or palladium, but also for example copper; agricultural products (various types of crops, cocoa, coffee, meat, cattle or even orange juice). Every commodity stock exchange where trading is happening have specified required parameters of selected commodities and the quantities that may be traded.

Given the characteristics of commodity stock exchanges where even the smallest price movements are watched closely, it is natural that leverage products – such as contracts for difference (“CFD”) – are used. When prices move, the money difference is paid based on this contract. In the case of price growth, the buyer pays money to the seller, in case of price decrease, money is paid in opposite direction. CFD are derivatives that enable speculations on price movement, without actually owning the underlaying asset – in this case the commodity.

We present you commodity trading using CFD and financial leverage using the following model case. Crude oil Brent had the value of 62.95 USD on 23 July 2019 at 6.45pm and then the value of 64.27 USD at 11.15pm. This represents a growth of 2.09 %.

In the table you may see examples of trades with leverage. Currently a leverage of 1:10 is applied when trading crude oil using CFD, our model in the table shows situations and profits/losses in cases, when leverage is lower or none at all. It is a speculation on price growth, which means we gain profits if the price grows and get losses if the price goes down.

 




































































A model case of how leverage trading with CFD works for oil trading
Brent 23 Jul 2019 6.45pm – 23 Jul 2019 11.15pm
Leverage Value at the opening Value at the closing Change (in %) Investment (EUR) Profit / Loss (EUR) Spread (EUR)
1:10 62.95 64.27 2.09 10,000.00 2,090 158
1:5 62.95 64.27 2.09 10,000.00 1,045 79
1:1 62.95 64.27 2.09 10,000.00 209 15.8

* Charges: the table shows so-called spread, that is a charge of the broker which is calculated from trader’s profit from the difference between buying and selling price. More information about charges and detailed calculations are available in https://goldenbrokers.net/.

 

The scenarios are valid for a trader that has opened his position on 23 July 2019 at 6.45pm while the value of oil was 62.95 USD and closed his position on the same day at 11.15pm at the value of 64.27 USD. In this time frame the Brent oil has grown by 2.09 %. The trader, as mentioned before, has speculated on growth. Without using any financial leverage his profits would be 209 EUR from an investment of 10,000 EUR. We can’t say this would be an unsuccessful trade, rather vice versa. If the trader speculated on price decrease, he would lose money. The speculation on growth was a good strategy in this case.

However, profits may be multiplied using financial leverage, for example in the ratio of 1:5. The trader would then reach a profit of 1,045 EUR from the same investment. When using leverage ratio 1:10, which is currently used for trading oil, the profit would be 2,090 EUR.

Capital markets regulation in the EU allows the maximum leverage level of 1:10 for commodity trading. In the same way in which leverage multiplies profits, it can also multiply losses. If the trader speculated on price decrease, he would end up with a loss of 2,090 EUR when using financial leverage of 1:10. That means he would lose almost one quarter of his investment during mere 4 hours.

As we showed you, it is a very risky product, which also means that no credible institution offers commodity trading with acceptable outcome from investment questionnaire. By law, all potential clients must fill it in before they can be offered such risky products.

 

Leverage trading has a long history

 

A first traded using financial leverage was a purchase of Pan-Atlantic Steamship Company by the company McLean Industries, Inc., in January 1955. Nowadays these trades are known as leveraged buyout. These buyouts were most popular in 1980s. CFD as know them now were introduced in London in 1990s. Brian Keelan and Jon Wood from the company UBS Warburg are usually named as founders of the instruments. CFD were frequently used by hedge funds and other institutional traders thanks to the possibility to trade without actual physical owning of the underlying asset. This way they avoided numerous high charges.

 

Towards the end of 1990s, thanks to the development of Internet and other means of communication, the possibility to trade CFD reached retail investors. Internet and other developments enabled watching every price movement and trade immediately. Many new online trading platforms and mobile applications were created subsequently and simplified trading even more. Thanks to easy access, capital markets trading has become a widespread matter.

 

 

 
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Nov 04, 2019

  • Education

Mobile trading: high profits and high risks

Online trading platform users now have the professional stock traders’ tools at the hand’s reach, but often underestimate risks.

The online world enabled access of stock trading to broad public and it is no longer a privilege of selected groups of people. Nowadays we don’t have to go to a bank or search for a broker, in theory we don’t even have to consult what and how to trade and invest into. We don’t even have to own a powerful computer with lots of screens as we see in movies related to Wall Street investment bankers. We could get similar profits with a simple smartphone where we download trading application for free, for example Metatrader. We can be trading literally anywhere and anytime. And if we don’t trust our judgment, we may use so-called “social trading” which means setting our trading rules in a way that copies investments by a selected investor or a company.

We now show you leverage trading on an investment instrument called “contract for difference”, also known as CFD.

 

Leverage trading: high profits and high losses

 

As opposed to stocks or currencies, contracts for difference have been used in trading and investing only recently – since 1990s. At the beginning they served financial institutions to hedge against exchange rate movements of stocks and other assets. It was only later when they became a product traded by smaller investors and traders.

 

When using CFD instruments, the trader does not become an owner of a physical stock, which means he also does not have any rights to profit or voting rights. On the other hand, the trader does not have to pay any stock charges and CFD trading is faster and easier in comparison to traditional assets.

 

CFD are financial derivatives that are used for price movement speculations. In simple words, CFD is created by opening a position and is finished by closing a position. Traders may speculate on price decrease or growth. When closing a position, trader’s speculation is compared to the real price movement, which means a calculation of a profit or loss. This is then multiplied by financial leverage usage, that enables traders to add usually significantly higher amount of foreign capital to their own capital.

Trading with higher “amount” then leads to profit increase, but also to higher potential losses.

 

For a better understanding of how financial leverage in CFD trading works, we present you a simplified case. We will use Facebook stocks movements between 17 and 18 June 2019. Facebook stocks were valued at 185 USD (on 17 June, at the beginning of trading session). On the following day, the stocks were valued at 185.5 USD, which meant an increase by 1.89 %. In the table you can see examples of trades where leverage is used, from 1:1 ratio to 1:5 ratio. There are three different results according to the leverage level. A profit or loss is created based on the decision to speculate on growth or decrease.

We now present you a case where the trader expected Facebook stocks growth and speculated on it.

 





















































A model case of leverage trading with CFD stocks
Facebook stocks (17 Jun 2019 – 18 Jun 2019)
Leverage Value at the opening Value at the closing Change (%) Investment (USD)   Profit/Loss Spread* (USD)
1:1 185 188.5 1.89 10,000.00 189 2.45
1:2 185 188.5 1.89 10,000.00 378 4.9
1:5 185 188.5 1.89 10,000.00 946 12.25

 

*Charges: the table shows so-called spread, that is a charge of the broker which is calculated from trader’s profit from the difference between buying and selling price. More information about charges and detailed calculations are available in https://goldenbrokers.net/.

 

Let’s assume that the trader opened a position on 17 June at the beginning of a session with the volume of 10,000 USD, speculated on growth and then closed it on the following day in the evening. The market really went up. Without using leverage, the trader would earn a profit of 189 USD. If he used a leverage of 1:5, his profit would be 946 USD. On the other hand, he would have same amount of loss, if he had speculated on price decrease.

 

As you can see in the example, the leverage may help to higher profits, but it may also cause losses of the same height. That’s why it is necessary for the trader to realize, how high his risk affinity is. If the investor requires a low level of risk, stocks trading using CFD would not be his cup of tea. Market beginners are also not encouraged to use leverages. For investors with a positive attitude towards risk, this type of trading may be a welcomed member of the portfolio, although even experienced traders usually do not use higher leverage than 1:5. If the trader incorporates reasonable rules for risk management, a trading system with higher leverage may be created. More information and basic glossary may be found in https://goldenbrokers.net/.

 

 
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License and Regulation: Golden Brokers Ltd. is authorised and regulated by the Vanuatu Financial Services Commission (“VFSC”) with company number 40546. As such, Golden Brokers Ltd. is authorised to carry out business of dealing in securities under the Financial Dealers Licensing Act [CAP 70].

Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Please read the full Risk Disclosure.