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16 February
WORKING PAPER SERIES - No.
Climate transition risk in the banking sector: what can prudential regulation do?
English
- Abstract
- Climate-related risks are due to increase in coming years and can pose serious threats to financial stability. This paper, by means of a DSGE model including heterogeneous firms and banks, financial frictions and prudential regulation, first shows the need of climate-related capital requirements in the existing prudential framework. Indeed, we find that without specific climate prudential policies, transition risk can generate excessive risk-taking by banks, which in turn increases the volatility of lending and output. We further show that relying on microprudential regulation alone would not be enough to account for the systemic dimension of transition risk. Implementing macroprudential policies in addition to microprudential regulation, leads to a Pareto improvement.
- JEL Code
- D58 : Microeconomics→General Equilibrium and Disequilibrium→Computable and Other Applied General Equilibrium Models
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
E61 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Policy Objectives, Policy Designs and Consistency, Policy Coordination
Q54 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Environmental Economics→Climate, Natural Disasters, Global Warming
15 February
WORKING PAPER SERIES - No.
Mortgage borrowing limits and house prices: evidence from a policy change in Ireland
English
- Abstract
- This paper studies how mortgage borrowers and house prices react to a tightening of mortgage limits following a policy change in Ireland in The policy introduced limits to the loan-to-income and loan-to-value ratios of new mortgages issued. In response to a tightening borrowing constraint, borrowers can choose to purchase a cheaper house or to reduce the leverage (LTV) of the mortgage. Using a difference-in-difference methodology, I find that groups of (poorer) borrowers, who were more likely to be above the loan-to-income threshold before the policy, responded primarily by buying cheaper houses after the policy change. On the other hand, groups of (richer) borrowers, who were more likely to be above the loan-to-value threshold, responded primarily by reducing the LTV of the mortgage. Borrowers who purchase cheaper houses could be buying smaller houses or the same size houses at a lower equilibrium price. To test for changes in equilibrium prices, I compare prices across postcodes and find that houses prices fell after the policy change in postcodes where a higher fraction of borrowers were above the loan-to-income threshold before the policy.
- JEL Code
- G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
E21 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Consumption, Saving, Wealth
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
R21 : Urban, Rural, Regional, Real Estate, and Transportation Economics→Household Analysis→Housing Demand
R30 : Urban, Rural, Regional, Real Estate, and Transportation Economics→Real Estate Markets, Spatial Production Analysis, and Firm Location→General - Network
- ECB Lamfalussy Fellowship Programme
14 February
WORKING PAPER SERIES - No.
Measuring market-based core inflation expectations
English
- Abstract
- We build a novel term structure model for pricing synthetic euro area core inflation-linked swaps, a hypothetical swap contract indexed to core inflation. Our approach relies on a term structure model of traded headline inflation-linked swap rates, which we assume span core inflation. The model provides estimates of market-based expectations for core inflation, as well as core inflation risk premia, at daily frequency, whereas core inflation expectations from surveys or macroeconomic projections are typically only available monthly or quarterly. We find that core inflation-linked swap rates are generally less volatile than headline inflation linked swap rates and that market participants expected core inflation to be substantially more persistent than headline inflation following the energy price spike. Using an event-study methodology, we also find that monetary policy shocks significantly lower core inflation expectations.
- JEL Code
- E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
13 February
WORKING PAPER SERIES - No.
Managing the transition to central bank digital currency
English
- Abstract
- We develop a two-country DSGE model with financial frictions to study the transition from a steady-state without CBDC to one in which the home country issues a CBDC. The CBDC provides households with a liquid, convenient and storage-cost free means of payments which reduces the market power of banks on deposits. In the steady-state CBDC unambiguously improves welfare without disintermediating the banking sector. But macroeconomic volatility in the transition period to the new steady-state increases for plausible values of the latter. Demand for CBDC and money overshoot, thereby crowding out bank deposits and leading to initial declines in investment, consumption and output. We use non-linear solution methods with occasionally binding constraints to explore how alternative policies reduce volatility in the transition, contrasting the effects of restrictions on non-residents, binding caps, tiered remuneration and central bank asset purchases. Binding caps reduce disintermediation and output losses in the transition most effectively, with an optimal level of around 40% of steady-state CBDC demand.
- JEL Code
- E50 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→General
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
F30 : International Economics→International Finance→General
F41 : International Economics→Macroeconomic Aspects of International Trade and Finance→Open Economy Macroeconomics
12 February
WORKING PAPER SERIES - No.
Demographics, labor market power and the spatial equilibrium
English
- Abstract
- This paper studies how demographics affect aggregate labor market power, the urban wage premium and the spatial concentration of population. I develop a quantitative spatial model in which labor market competitiveness depends on the demographic composition of the local workforce. Using highly disaggregated administrative data from Germany, I find that firms have more labor market power over older workers: The labor supply elasticity decreases from more than 2 to 1 from age 20 to Calibrating the model with the reduced-form elasticity estimates, I find that differences in labor supply elasticities across age groups can explain 4% of the urban wage premium and 2% of the spatial concentration of population. Demographics and skill together account for 10% of the urban wage premium and 2% of agglomeration.
- JEL Code
- J11 : Labor and Demographic Economics→Demographic Economics→Demographic Trends, Macroeconomic Effects, and Forecasts
J31 : Labor and Demographic Economics→Wages, Compensation, and Labor Costs→Wage Level and Structure, Wage Differentials
J42 : Labor and Demographic Economics→Particular Labor Markets→Monopsony, Segmented Labor Markets
R23 : Urban, Rural, Regional, Real Estate, and Transportation Economics→Household Analysis→Regional Migration, Regional Labor Markets, Population, Neighborhood Characteristics
12 February
WORKING PAPER SERIES - No.
Gas price shocks and euro area inflation
English
- Abstract
- This paper develops a Bayesian VAR model to identify three structural shocks driving the European gas market: demand, supply and inventory shocks. We document how gas price fluctuations have a heterogeneous pass-through to euro area prices depending on the underlying shock driving them. The pass-through is stronger and more persistent when gas prices are driven by aggregate demand or supply pressures, while inventory shocks have a weaker impact. Supply shocks, moreover, are found to pass through to all components of euro area inflation – producer prices, wages and core inflation, which has implications for monetary policy. We finally document how the response of gas prices to shocks is non-linear and is significantly magnified in periods of low unemployment.
- JEL Code
- C50 : Mathematical and Quantitative Methods→Econometric Modeling→General
C54 : Mathematical and Quantitative Methods→Econometric Modeling→Quantitative Policy Modeling
E30 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→General
E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
Q43 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Energy→Energy and the Macroeconomy
12 February
OTHER PUBLICATION
Manual on MFI balance sheet statistics
English
8 February
WORKING PAPER SERIES - No.
Households' response to the wealth effects of inflation
English
- Abstract
- We study the redistributive effects of surprise inflation combining administrative bank data with an information provision experiment during an episode of historic inflation. On average, households are well-informed about prevailing inflation and are concerned about its impact on their wealth; yet, while many households know about inflation eroding nominal assets, most are unaware of nominal-debt erosion. Once they receive information on the debt-erosion channel, households view nominal debt more positively and increase estimates of their own real net wealth. These changes causally affect actual consumption and hypothetical debt decisions. Our findings suggest that real wealth mediates the sensitivity of consumption to inflation once households are aware of the wealth effects of inflation
- JEL Code
- D12 : Microeconomics→Household Behavior and Family Economics→Consumer Economics: Empirical Analysis
D14 : Microeconomics→Household Behavior and Family Economics→Household Saving; Personal Finance
D83 : Microeconomics→Information, Knowledge, and Uncertainty→Search, Learning, Information and Knowledge, Communication, Belief
D84 : Microeconomics→Information, Knowledge, and Uncertainty→Expectations, Speculations
E21 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Consumption, Saving, Wealth
E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy - Network
- ECB Lamfalussy Fellowship Programme
8 February
WORKING PAPER SERIES - No.
The macroeconomic effects of global supply chain reorientation
English
- Abstract
- Policymakers around the world are encouraging the local production of key inputs to reduce risks from excessive dependencies on foreign suppliers. We analyse the macroeconomic effects of supply chain reorientation through localisation policies, using a global dynamic general equilibrium model. We proxy non-tariff measures, such as the stricter enforcement of regulatory standards, which reduce import quantity but do not directly alter costs and prices. These measures have, so far, been a key component of attempts to reshore production and are an increasingly popular trade policy instrument in general. Focusing on the euro area, we find that localisation policies are inflationary, imply transition costs and generally have a negative long-run effect on aggregate domestic output. The size (and sign) of the impact depends on whether these policies are implemented unilaterally or induce a retaliation from trade partners, and the extent to which they reduce domestic competition and productivity. We provide some recommendations for policymakers considering implementing a localisation agenda.
- JEL Code
- F13 : International Economics→Trade→Trade Policy, International Trade Organizations
F41 : International Economics→Macroeconomic Aspects of International Trade and Finance→Open Economy Macroeconomics
F45 : International Economics→Macroeconomic Aspects of International Trade and Finance
F62 : International Economics→Economic Impacts of Globalization→Macroeconomic Impacts
8 February
ECONOMIC BULLETIN
Economic Bulletin Issue 1,
English
English
8 February
ECONOMIC BULLETIN - BOX
Fiscal policy measures in response to the energy and inflation shock and climate change
Economic Bulletin Issue 1,
English
- Abstract
- This box provides updated estimates of the euro area discretionary fiscal measures related to the support provided by euro area governments in response to the energy crisis and high inflation. It also discusses how these measures relate to climate change in the context of the December Eurosystem staff macroeconomic projections.
- JEL Code
- E62 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Fiscal Policy
E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
E63 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Comparative or Joint Analysis of Fiscal and Monetary Policy, Stabilization, Treasury Policy
8 February
ECONOMIC BULLETIN - BOX
Policy expectation errors during the recent tightening cycle – insights from the ECB’s Survey of Monetary Analysts
Economic Bulletin Issue 1,
English
- Abstract
- Financial markets and analysts significantly underestimated the pace and size of the recent increases in the key ECB interest rates. This box measures the size and dynamics of policy expectation errors. Based on information from the ECB’s Survey of Monetary Analysts, it suggests that these expectation errors were driven mainly by revisions to macroeconomic expectations, indicating that analysts perceived a broadly consistent policy reaction to macroeconomic developments.
- JEL Code
- E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates
8 February
ECONOMIC BULLETIN - BOX
Corporate vulnerabilities as reported by firms in the SAFE
Economic Bulletin Issue 1,
English
- Abstract
- Historically, the financial vulnerability indicator based on the Survey on the Access to Finance of Enterprises (SAFE) evolves broadly in line with bankruptcies and other insolvency measures for firms in the euro area. The current rise in vulnerabilities identified in the SAFE is driven mostly by firms in industry, construction and trade and by large firms rather than by small and medium-sized enterprises (SMEs). Increasing interest expenses are important in explaining the likelihood of firms becoming vulnerable. Balance sheet data on firms in the SAFE confirm that corporate vulnerabilities have implications for their investment rate and employment growth. This provides further insights into the transmission of monetary policy to economic activity.
- JEL Code
- D22 : Microeconomics→Production and Organizations→Firm Behavior: Empirical Analysis
G33 : Financial Economics→Corporate Finance and Governance→Bankruptcy, Liquidation
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
8 February
ECONOMIC BULLETIN - BOX
Is the PMI a reliable indicator for nowcasting euro area real GDP?
Economic Bulletin Issue 1,
English
- Abstract
- Purchasing Managers’ Index (PMI) surveys are insightful because PMIs are released in advance of official hard data and are typically strongly correlated with these. This Box reports that after losing some predictive capacity during pandemic-related lockdowns and reopenings, the euro area composite output PMI is once again a reliable timely indicator for nowcasting euro area real GDP growth.
- JEL Code
- E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles
E37 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Forecasting and Simulation: Models and Applications
8 February
ECONOMIC BULLETIN - BOX
Global trade in the post-pandemic environment
Economic Bulletin Issue 1,
English
- Abstract
- The pandemic triggered the deepest global recession (albeit short-lived) since the Second World War amid large-scale policy support, and led to a sweeping fall in world trade. Following the initial COVID shock, trade staged a rapid recovery, but from the second half of world trade growth started to decelerate markedly and in it is estimated to have been considerably below its pre-pandemic average. This box reviews the factors behind the buoyant recovery of global trade following the initial COVID shock and the reasons for its lacklustre performance in , finding that the latter mainly reflects the unwinding of some specific post-pandemic factors (e.g. the rotation of demand from trade-intensive goods towards services owing to the full relaxation of pandemic containment measures) and a less trade-friendly composition of global activity.
- JEL Code
- F01 : International Economics→General→Global Outlook
F1 : International Economics→Trade
F4 : International Economics→Macroeconomic Aspects of International Trade and Finance
8 February
ECONOMIC BULLETIN - BOX
Assessing the macroeconomic effects of climate change transition policies
Economic Bulletin Issue 1,
English
- Abstract
- Emission reduction measures have been adopted at both country and European Union (EU) levels. This box assesses the impact on euro area real GDP and inflation of green fiscal discretionary measures as included in the December Eurosystem staff macroeconomic projections. Since these measures are unlikely to be sufficient to fully achieve the EU targets for emission reduction, energy efficiency and renewable energy production, model simulations are used to illustrate the medium-term impact of alternative transition policy scenarios. These simulations suggest modest downside risks to GDP and upside risks to inflation from transition policies to achieve EU targets, but the effects depend on the transition policy mix.
- JEL Code
- E3 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles
E62 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Fiscal Policy
Q48 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Energy→Government Policy
8 February
OCCASIONAL PAPER SERIES - No.
A forward-looking tracker of negotiated wages in the euro area
English
- Abstract
- This paper introduces innovative, newly developed forward-looking indicators of negotiated wage growth in the euro area using data on collective bargaining agreements from seven countries: Germany, France, Italy, Spain, the Netherlands, Austria and Greece. The paper demonstrates how agreement-level data can be used to study drivers of aggregate negotiated wage growth, as well as monitor the breadth of wage increases and account for time-varying factors such as one-off payments, when assessing wage pressures. Lastly, the paper shows that the new indicators can provide reliable signals about current and future developments of wage pressures in the euro area while also serving as important cross-checking tools for negotiated wage growth forecasts.
- JEL Code
- E24 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Employment, Unemployment, Wages, Intergenerational Income Distribution, Aggregate Human Capital
J31 : Labor and Demographic Economics→Wages, Compensation, and Labor Costs→Wage Level and Structure, Wage Differentials
J50 : Labor and Demographic Economics→Labor?Management Relations, Trade Unions, and Collective Bargaining→General
7 February
ECONOMIC BULLETIN - BOX
Estimates of the natural interest rate for the euro area: an update
Economic Bulletin Issue 1,
English
- Abstract
- The natural rate of interest is defined as the real rate of interest that is neither expansionary nor contractionary. r* is unobservable and its estimation is fraught with a host of measurement and model-specification challenges. A wide range of estimates obtained from a suite of models and approaches suggests that cyclical measures of euro area r* have been edging higher recently. Yet slow-moving estimates anchored to long-run economic trends are unlikely to have risen measurably.
- JEL Code
- E43 : Macroeconomics and Monetary Economics→Money and Interest Rates→Interest Rates: Determination, Term Structure, and Effects
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
5 February
WORKING PAPER SERIES - No.
What drives banks’ credit standards? An analysis based on a large bank-firm panel
English
- Abstract
- In this paper we build a unique dataset to study how banks decide which firms to lend to and how this decision depends on their own situation and the characteristics of their borrowers. We find that weaker capitalised banks adjust their credit standards more than healthier banks, especially for firms with a higher default risk. We also show how credit standards change in reaction to two specific macroeconomic developments, namely an increase in bank funding costs and a sudden deterioration in banks’ corporate loan portfolios. Here we find that weaker banks respond more forcefully by tightening their credit standards more than better capitalised banks. This development is particularly pronounced when banks are linked to riskier firms. Insofar, we provide evidence of heterogeneity in the bank lending channel, depending on the situation of the lenders and the borrowers.
- JEL Code
- E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
E51 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Money Supply, Credit, Money Multipliers
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
5 February
ECONOMIC BULLETIN - ARTICLE
The Eurosystem policy response to developments in retail payments
Economic Bulletin Issue 1,
English
- Abstract
- Retail payments are undergoing profound changes that are reshaping the European payments landscape. The retail payments ecosystem and consumers’ attitudes and preferences are evolving and influencing one another. To address these changes, the Eurosystem has devised a multi-faceted policy response to ensure the safety and efficiency of the euro retail payments market as well as people’s continued access to public money in the form of cash and, potentially, in a digital form.
- JEL Code
- E42 : Macroeconomics and Monetary Economics→Money and Interest Rates→Monetary Systems, Standards, Regimes, Government and the Monetary System, Payment Systems
Trading Platforms: MT4, MT5, Octatrader
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Best Switzerland forex brokers for
The Significance of Choosing the Right Forex Broker
Selecting the right forex broker is of paramount importance, as it can profoundly impact your trading experience and success. Here&#;s why making the right choice matters:
- Regulation and Safety: Swiss forex brokers are regulated by the Swiss Financial Market Supervisory Authority (FINMA), known for its stringent oversight. Choosing a broker regulated by FINMA ensures the safety of your funds and adherence to high ethical standards.
- Trading Conditions: The trading conditions offered by the broker, including spreads, leverage, and execution speed, can significantly affect your profitability. Opt for brokers that provide competitive and transparent trading conditions.
- Platform and Tools: A user-friendly and feature-rich trading platform is crucial for executing trades effectively. Additionally, access to analytical tools, charts, and educational resources can enhance your trading experience.
- Asset Selection: Diversification is a key principle in forex trading. Ensure the broker offers a wide range of currency pairs, including major, minor, and exotic pairs, allowing you to diversify your trading portfolio.
- Customer Support: Efficient customer support is essential for addressing trading-related issues promptly. Look for brokers that offer responsive customer support, preferably available 24/5 to align with the forex market&#;s operating hours.
Now that we recognize the importance of selecting the right forex broker, let&#;s review the top forex brokers in Switzerland.
The Top Switzerland Forex Brokers Reviewed
1. Swissquote Bank
As a Swiss-based broker, Swissquote Bank is synonymous with trust and reliability. Regulated by FINMA, Swissquote offers a wide range of forex pairs, competitive spreads, and advanced trading platforms. It also provides access to other financial instruments, making it a versatile choice for traders.
2. Dukascopy Bank
Dukascopy Bank is another Swiss institution known for its commitment to transparency and innovation. It operates the SWFX Swiss FX Marketplace and offers traders direct access to the interbank forex market. With competitive spreads and an array of trading tools, Dukascopy appeals to both retail and institutional traders.
3. Saxo Bank
While not headquartered in Switzerland, Saxo Bank serves Swiss clients and is regulated by FINMA. Saxo Bank&#;s trading platform offers access to forex, stocks, commodities, and more. With a comprehensive suite of research and analysis tools, it caters to traders seeking diverse trading opportunities.
4. IG Switzerland
IG Group, a globally recognized broker, provides services to Swiss traders through its Swiss entity, IG Switzerland. Regulated by FINMA, IG offers competitive spreads, a user-friendly trading platform, and access to a vast range of financial markets, including forex, indices, and cryptocurrencies.
5. Admiral Markets
Admiral Markets, while not Swiss-based, has a strong presence in Switzerland and is regulated by FINMA. The broker provides traders with a selection of trading accounts, including a flagship Admiral Prime account designed for professional traders. With low spreads and a variety of trading tools, it caters to different trading styles.
Is forex trading taxed in Switzerland?
Yes, forex trading is taxed in Switzerland. Foreign exchange fluctuations resulting in gains on import and export transactions, foreign currency loans, and forward exchange contracts are taxed as ordinary income.
Investing in Forex vs. Stocks
Forex trading is somewhat distinct from stock market trading. However, this is in no way a disadvantage. Indeed, there are numerous very large businesses operating in this area. It is also true that trading occurs nearly 24 hours a day, from Monday morning until Friday evening. For all major currency pairs, trading is brisk and predominantly volatile. However, it is not true that forex trading is exclusively for professionals; why should this be the case?
Consider the euro&#;s performance against the U.S. dollar as an example: What distinguishes it from, for instance, an index or a stock? Nothing.
The fact that you can trade here 24 hours a day, seven days a week, and that almost every significant currency pair has sufficient turnover are not disadvantages if you trade prudently, but advantages. Reasonable means: Obviously, you need a strategy; ideally, you should develop a small trading system and act consistently with stop prices, as in all other areas of the stock market. Then this is an incredibly intriguing investment opportunity. However, keep this in mind:
It is not uncommon for overnight price-moving events to occur. In fact, it is only 6 p.m. in New York, where many points are established, when it is midnight in Europe. There are numerous events that can affect the stock markets. The Asian stock markets are therefore only open at night. On the currency market, however, you can react immediately, such as on November 8, , following the U.S. election. There, in the early hours of the morning, when it became clear that Trump, and not Clinton, would win, short-term trading profits were extraordinarily profitable.
Forex jargon &#; The key terms used in forex trading
One might believe that Forex traders have a specialized language that must be learned in order to keep up. In reality, however, there are only a few terms unique to forex trading that traders and/or investors do not encounter on a daily basis in other stock market segments. Here is a brief glossary of FX trading terminology.
Lot
A &#;lot&#; denotes the minimum amount of currency that one must trade when trading forex. The focus here is on &#;real&#; currency transactions, not derivatives trading. There, these sizes also apply to what is traded with individual units in CFDs, options, and futures, but the capital requirements are obviously vastly reduced. A lot consists of , units of a given currency pair. In addition, there are typically &#;mini lots&#; (10, units) and occasionally &#;micro lots&#; for large currency pairs (1, units).
Pip
One frequently reads that a trader earned &#;ten pips&#; on a currency pair. This is the smallest unit displayed for a currency, which is typically the fourth digit after the decimal point. Therefore, in Euro/US Dollar, a &#;pip&#; equals USD per Euro. For example, a move from to represents an increase of 2 pips, while a move from to represents an increase of 20 pips.
Spread
The spread is the difference between the bid and ask prices, or the difference between the purchase (bid) and sale (ask) prices. This range is extremely small, particularly in forex trading with the most popular currency pairs. It is represented by the &#;pips&#; mentioned previously. In Forex Chinese, the bid/ask spread itself, i.e. the current price, is referred to as &#;quotation.&#;
The Majors and Minors
&#;Majors&#; refers to currency pairs that are frequently traded and vital to the global economy, such as those containing the euro, yen, pound sterling or US dollar. Minor currency pairs are those that are traded less frequently, such as the relationship between the Norwegian krone and the New Zealand dollar.
Slippage
Slippage is the difference that can occur when buying or selling currency positions at the price actually displayed at the moment or given with a stop loss during extremely rapid price movements. This occurs infrequently, typically involving only a few pip movements&#; but can yield significant profits with extremely large positions.
How to become a successful forex trader?
Anyone can participate in forex trading and be successful. Basically, forex price movements obey the same laws as everything else that is listed on the stock exchange, which means:
- The foreign exchange market reacts to economic and political news.
- Successful forex traders are guided by chart and market specifications.
- And when things get hectic, the same thing happens as in everything else: traders begin to act emotionally and, as a result, make mistakes that a good investor can avoid by acting more prudently when others are not.
The only element that leads to a slightly different price behavior here is the very high number of extremely short-term market participants. There are a lot of big addresses that take positions worth millions, where it&#;s already worth taking a profit with four or five &#;pips&#; in the right direction. This activity by super-short-term players, who are also known as &#;pip traders&#;, means that the price picture in the intraday chart often appears quite erratic.
Forex trading strategies
As you&#;ve seen, becoming an active &#;normal&#; investor on the foreign exchange market is not rocket science. However, there is one thing you must consider before engaging in forex trading: what do you want to be? Trader or Investor? Can you and do you wish to take advantage of the opportunities provided by hour trading on the foreign exchange market and trade price fluctuations? Or, would you like Forex trading to be an extension of your investment portfolio and a tool for implementing long-term trends?
Depending on your choice, you will employ very distinct strategies. But only one of the two is available. Because the characteristics of the foreign exchange market, most notably the continuous trading and the factor of the so-called &#;cross rates&#;, i.e. the automatic cross-connections of the currencies to and with each other (see also the article: &#; FX in focus: the most crucial facts for foreign exchange trading &#;), necessitate that there is no middle ground between short-term and long-term action. So, what are your plans? Do scalping or investment for the long term?
Trend following via long-term investment
If you are uninterested in or simply unable to devote the time required to act as a high-profile trader capable of lurking for short-term impulses, trend-following is an option. Short-term foreign exchange market volatility is typically high; prices can rise sharply one day and fall sharply the next, making it difficult and sometimes impossible to achieve a medium-term trading level. But:
If you move up a level, to a longer-term time frame, you will discover that many currency pairs have long, intense trends that can be utilized effectively. This can be seen in the below chart of the US Dollar/British Pound exchange rate over a five-year period, which we will use as an example throughout this article.
Trend-following traders should favor weekly charts to avoid being irritated by erratic but ultimately non-trend-relevant price movements on shorter-term time frames. The graph also demonstrates that, regardless of whether you are active in uptrends, downtrends, or sideways movements, it makes sense to consistently use only the weekly closing prices to generate trading signals and make trading decisions.
Scalping
Scalping, which is ultra-short-term trading in which you anticipate short-term impulses, jump on those impulses, and take lightning-fast profits, is the polar opposite of long-term trend-following. One, two, or five minute time frames are typical there. As an illustration, consider the USD/GBP exchange rate over just two hours on April 18, (chart timeframe one minute per candlestick):
This brief time period alone exhibited numerous impulses. With the right strategy and consistency, anyone who enjoys &#;hunting&#; for such trading opportunities can achieve great success in the Forex market. Taking small and minuscule impulses on the so-called &#;pip level&#; is only worthwhile if you choose a correspondingly higher capital investment.
But how should one proceed here, what procedure and trading instruments would be appropriate? As a long-term investor, what is the optimal method for scalping?
Forex trading tools
In general, the more tools you have available, the better. Successful investors and traders utilize both traditional technical chart analysis and the market technology provided by indicators and candlestick chart formations. However, one thing should also be written on the flag:
Keep it simple: the simpler, the better!
&#;Keep it simple!&#; Using too many indications concurrently frequently produces contradictory signals. Therefore, it is recommended to concentrate on three or four tools and use their statements as a foundation for your own dispositions. As an investor, you must understand that no stock market system can be perfect. In addition, there are frequently completely unanticipated impulses that influence prices &#;from the outside,&#; such as political developments, central bank measures and/or comments, or unexpected economic data.
Therefore, it is crucial that not all signals result in a profit. But that is irrelevant as well. The deciding factor is that the majority of your trades are profitable&#; and that you limit your losses quickly and consistently when you do incur a loss. Which means that no system or trade may be operated or executed without the protection of a stop rate!
Tools for long-term investors
What type of signal generator is suitable for a long-term investor? The following graph demonstrates that less is more, and that a manageable number of indicators is sufficient.
In this chart, four tools are utilized:
- Using the traditional charting method with its trends, supports, and resistances.
- With the MACD trend-following indicator, a technical signal can be confirmed. In other words, you would only establish a long or short position if the MACD confirms such a signal from the charting technique.
- With a moving average, in this case the day moving average, a short signal was generated in the spring of when the US Dollar/British Pound was repelled down at that line.
- And finally, one observes and employs the candlestick theory&#;s signals. Especially on a weekly basis, which is unknown to many market participants, there are quite a few of them, and they are also pleasantly dependable. There are a &#;Morning Star&#; and a &#;Hammer&#; on a weekly basis during the nearly two-year period depicted in the chart. These are extremely significant reversal signals, which, as the chart demonstrates, also indicate lower turning points.
Tools for short-term investors
Even on the shortest timescales, chart signals are ephemeral. Below is a five-minute chart of the US Dollar/British Pound exchange rate for the time period between a.m. and p.m. During this brief interval, only two &#;Morning Stars&#; and a completed top formation were displayed:
A second way to trade a system at the short-term level is with moving averages, which are frequently comprised of two or three lines, as depicted in the chart below for the minute time frame over two weeks. On the foreign exchange market, such moving averages are also utilized by a number of trading systems developed by market leaders. However, you should then act with flexibility. Because computer-controlled trading systems independently shorten or lengthen the chart time grid, for which these moving averages are used, in response to increasing or decreasing volatility, traders must do so manually.
Consequently, it makes sense not only to test a system with moving averages in terms of the length of the respective average lines you are working with, but also to check throughout the day what the price is doing in relation to the time frame of the price development. In this case, the minute level worked well within the specified time frame, but as previously stated, this can change.
Final word
Switzerland&#;s reputation for precision, security, and financial excellence extends seamlessly into the world of forex trading. Swiss forex brokers, regulated by FINMA, provide traders with a safe and trustworthy environment to explore the global currency markets. When selecting the best forex broker in Switzerland, prioritize factors such as regulation, trading conditions, platform quality, asset selection, and customer support. The Swiss approach to forex trading emphasizes reliability and adherence to high standards, ensuring that traders have a stable foundation for their forex endeavors. Happy trading!
Forex trading Switzerland FAQs
Are forex brokers in Switzerland regulated?
Yes, forex brokers in Switzerland are regulated by the Swiss Financial Market Supervisory Authority (FINMA). FINMA&#;s stringent oversight ensures that brokers comply with strict standards and provides a high level of security for traders.
What is the Swiss approach to forex trading?
The Swiss approach to forex trading emphasizes regulatory oversight, security of funds, the Swiss Franc as a safe-haven currency, and adherence to high standards of banking and financial services.
Do Swiss forex brokers offer high leverage?
Swiss forex brokers typically offer lower leverage compared to some offshore brokers. This is in line with FINMA&#;s regulatory efforts to protect traders by reducing the risks associated with high leverage.
Are there tax implications for forex trading in Switzerland?
Taxation on forex trading in Switzerland can vary depending on individual circumstances. It&#;s advisable to consult with a tax professional to understand your specific tax obligations related to forex trading.
What is the best trading strategy for forex beginners in Switzerland?
For beginners in Switzerland or anywhere else, it&#;s essential to start with a solid understanding of the forex market, practice risk management, and consider starting with a demo account to gain experience before trading with real money.
Trading Platforms: MT4, MT5, WebTrader, AvatradeGO, AvaOptions, DupliTrade, ZuluTrade, AvaSocial, eunic-brussels.eu
Regulation: Bank of Ireland, ASIC, JFSA, FSCA, CySEC, BVI FSC, FRSA, ISA