Are you an experienced Foreign Exchange (FX) trader?

The Stafford Currency Briefing is the perfect tool for FX traders who trade based on fundamentals.
The Briefing saves you HOURS every week by delivering all the important data you need - BEFORE the beginning of the trading week.

It includes

• Relevant world news
• "Risk Aversion" indicator generated from counterparty risk, TED spread, VIX and other indicators
• US economic fundamentals (CPI, GDP change, current account balance, sovereign CDS rate, unemployment, and others), news release calendar, and the prior week news results
• Comprehensive review of comparative fundamentals, trading sentiment, news, technical charts, and commentary for the 5 major currencies: EUR, GBP, JPY, AUD, and CAD
• A compendium of the major commodity indices and relevant news, for use with the commidities currencies (AUD, CAD)
• The Options corner, a special feature that analyzes opportunities for trading FX with options
• A Country Economics chart comparing the top 18 economies with respect to current account balance and budget balance. This chart is very useful for those looking for economies which are dual surplus or dual deficit.
• User's Guide to understand the data included

Download a trial issue of the Briefing (PDF format)
Get the User's Guide to the Briefing

Subscribe to the Briefing now: go to the "Get the Briefing" tab - and see how the Stafford Briefing has returned more than 33% in 2009!

NEW! a must-read for anyone trading in forex: The Fallacy of Outsize Returns

* Sources include (but are not limited to) Financial Times, Reuters, Bank of New York, Bloomberg, CNBC, CNN, China View, New York Times, RGE Monitor, PFX Global, ICSC, Mizuho Bank, Miche’s Global Trends, Market Oracle, Seeking Alpha, Dismal Scientist, Yahoo Finance, 321energy, Capital Link Shipping, and Kitco

 

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Who is Paul Stafford?
Paul has worked as a rocket scientist, an R&D engineer, a marketing manager, a commercial realtor, and now a foreign-exchange trader. The one thing all these careers have in common is the need to analyze and make decisions based on complex data. Paul loves numbers and analysis! Read more on the "About" tab.

Trading Forex with Options

Have you wanted to try trading foreign exchange, but didn’t really understand it? Or perhaps you have traded forex on the spot market, and found that the risks seemed unmanageable? Maybe you’ve thought a little about forex options, but the textbooks describing option theory were too daunting.

Trading Forex with Options, by Paul Stafford, and edited by Kris Matthews, is a very readable primer on trading the forex market using options.

Starting off with the basics of forex (what it is, which currencies are traded, the advantages and disadvantages of the forex market), I describe the nuts and bolts of trading the market. Pips, lots, bid-ask spreads, margin - it’s all there.

The second chapter helps you dissect price action into its components and understand volatility.

Options are up next, with a simple, intuitive description of how they work, how they are valued, and how they can be combined for maximum reward and minimum risk. Finally, and most importantly, I give several real life examples - how to select precise strikes and expiries depending on price action and volatility.

Take advantage of this distillation of years of experience and analysis, and begin trading forex profitably - with confidence and peace of mind.

Get the eBook - just $19.95!

Forex Options Analysis Spreadsheet

One of the safest ways to trade foreign exchange is with options, enabling you to optimize return while minimizing risk. However, visualizing the profit and loss picture of various combinations of multiple options, and possibly an underlying spot position, is very difficult. It’s not too hard to sketch out the P&L at expiry, but the time decay component of options means that the intermediate P&L between initiation and expiration can be quite different than the final picture.

The Forex Option Analysis Excel spreadsheet takes all of the work and drudge out of the task. Easy drop down menu selections of trading pairs, Call/Put/Spot selection and other items makes it simple to set up the trade. Calculations of estimated spreads and cost to close the position add real-world accuracy to the results. A sample spreadsheet is shown below.

• 23 pairs of currencies supported
• Up to 4 legs: long or short calls, puts, and spot
• Each leg can be any number of lots
• Display of P&L at initiation, expiry and three intermediate dates
• Calculates net premium at expiry, unrealized value of positions and trade value
• Display can be centered around the current spot price or over the 10 year price history
• Displays individual and net Gamma and Delta

FREE VIDEO - see the spreadsheet in action and learn how to use it!

Get the spreadsheet! Just $19.95

The information contained in this spreadsheet is for general information purposes only. While I strive to provide you with a high quality product, I make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability or availability with respect to the spreadsheet or the information and related graphics contained in this workbook for any purpose. Any reliance you place on such information is therefore strictly at your own risk.

In no event will I be liable for any loss or damage including without limitation, indirect or consequential loss or damage, or any loss or damage whatsoever arising from loss of data or profits arising out of, or in connection with, the use of this spreadsheet.

View on the yen

I must admit that I have a hard time maintaining an open mind on the yen. I see so many issues impacting the currency relative to the other G-7 that when good news does happen, I tend to discount it (my own Confirmatory Bias peeking through). So let’s start with my predilection that the Yen is due for a fall, and then try to discredit it.

The fundamentals certainly do give one pause. The central bank rate has been 0.1% for years, and of course gave rise to the Carry Trade. With the recent increases moving short term US interest rates above Japanese rates, a resurgence of the Carry Trade will drive the Yen lower. Other measures of the economy are woeful too. The GDP took the worst fall of all the G-7 last year (-12.7% annualized in March 2009), and monthly change in GDP remains negative, although improved from a year ago. Amongst the G-7, the budget deficit is third worst (behind the US and UK) at -7.8%.

The CPI has been negative for over a year, and remains so even though other nations are have been seeing positive numbers for a while now. Of and by itself, a negative CPI is no crime, but the deflation it indicates has plagued Japan for several decades now, and unless policy changes, will sap the strength of the economy.

The last few years of Yen strength have severely impacted Japan’s export economy. As you can see from the chart, the Yen is still near historic highs against the $. That is important. The US, consuming 20% of Japanese exports, is Japan’s largest trading partner by far (China comes in 2nd at 15%, and the Yuan is pegged to the $).

The recent $56B increase in the borrowing limits for the foreign exchange special account indicates to me that intervention is a distinct possibility. The Bank of Japan has done it before, they will do it again.

Sovereign risk, as measured by CDS rates, remains among the highest in the G-7 (recently 63 bps, compared to the US at 48 bps, Germany at 34 and France at 43 bps), only recently being eclipsed by the UK. This is probably a result of the absolutely huge public debt that Japan has, forecast to exceed 225% of GDP by the end of this year. In a similar measure, Standard and Poors recently downgraded the outlook from stable to negative. While Japan’s debt still carries an AAA rating, the UK is the only other G-7 country with a negative outlook.

The long term macro view is hardly any better. Everyone is familiar with the serious demographic issues facing Japan. Its population is both shrinking (forecast -.2%/yr) and aging (30% of the population is over 60). Because of its unique culture, net immigration is negligible. Japan imports more than 80% of its energy needs, and so is very sensitive to the price of oil. The huge public debt overhangs it all. The Nikkei 225 is 25% of its 1990 high (chart courtesy yahoo finance)

A good trader always looks for data opposing his view. On the plus side, unemployment in Japan is only 7.8%, and Japan also carries a positive current account balance. Sentiment indicators are still bullish Yen, with the last 25 Delta risk reversal I saw on the $/JPY at -1.25 (quote from Super Derivatives), and CME futures are roughly 2:1 long Yen. The huge public debt is mainly held domestically, as opposed to the huge US public debt, which is mainly held offshore. With a growing China as a trading partner, exports should strengthen, and the recent increase in renminbi short-term forwards indicating a potentially stronger Chinese currency should also help.

In spite of those contra indications, my expectation for a weaker Yen remains. A stronger Yen hurts the export economy, and exacerbates the deflation currently strangling Japan. Monetary policy must move for a weaker Yen. Only risk aversion, which paradoxically (to me) benefits the Yen) can keep the Yen in its current range.

Current rates

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Who is Paul Stafford?

A guy who loves complex analysis! He started out as an engineer at NASA, designing image processing hardware used in infrared astronomy. Paul then continued his engineering career at Hewlett Packard, where he specialized in calibration algorithms for RF and microwave signal analysis and generation. With several patents under his belt, he moved to the marketing and finance side of HP and became fascinated by the economics of the business. Paul’s new focus became ROE, NPV, IRR and other investment metrics.

After discovering ForEx and tackling it like any other engineering problem, Paul noted the essential randomness of the market, very low signal to noise ratio and the risk/reward dangers. He has developed a trading approach - using options in conjunction with fundamental analysis - which matches the market characteristics. Instead of utilizing the technical trader’s tools of RSI and MACD, Paul has focused on the deeper economic indicators of current-account balance, balance of trade, differential interest rates and unemployment. His weekly newsletter, the Stafford Currency Briefing, is a direct result of his own weekly preparations for trading currencies on the fundamentals.

Feel free to email Paul for questions or discussion.