Monthly Archives: May 2016

Items Not Valid for Foreign Exchange (FX) in the Nigerian FX Markets

In an attempt to sustain the stability of the Foreign Exchange (FX) Market and ensure efficient utilization of Foreign Exchange for the derivation of optimum benefits from goods and services imported into Nigeria, the Central Bank of Nigeria (CBN) recently issued a new directive in a circular it distributed.

The directive exempts some imported goods and services from the list of items eligible to access FX at the Nigerian Foreign Exchange markets in order to foster and support local production of these items in the country.

The implication of this development is that importers desiring to import any of the items listed in the aforementioned CBN’s directive would be required to source for FX funds without any recourse to the Nigerian Foreign Exchange market (Interbank market and BBN Intervention).

The list of the affected items are outlined below but may be reviewed as the need arises. However, please note that the importation of these items are not banned.

The items include the following:

Palm kernel/Palm oil products/vegetables oils
Meat and processed meat products
Vegetables and processed vegetable products
Poultry chicken, eggs, turkey
Private air-planes/jets
Indian incense
Tinned fish in sauce(Geisha)/sardines
Cold rolled steel sheets
Galvanized steel sheets
Roofing sheets
Head pans
Metal boxes and containers
Steel drums
Steel pipes
Wire rods(deformed and not deformed)
Iron rods and reinforcing bard
Wire mesh
Steel nails
Security and razor wine
Wood particle boards and panels
Wood Fibre Boards and Panels
Plywood boards and panels
Wooden doors
Glass and Glassware
Kitchen utensils
Tiles-vitrified and ceramic
Woven fabrics
Plastic and rubber products, polypropylene granules, cellophane wrappers
Soap and cosmetics
Tomatoes/tomato pastes
Eurobond/foreign currency bond/ share purchases

In our view, we understand Share Purchases (item 40 in the list) to be referring to Nigerians who access the foreign exchange market to invest in foreign securities and not foreign investors who inflow funds into Nigeria for the purposes of investment.

The CBN stated this was in a bid to sustain the stability of the foreign exchange market and ensure the efficient utilization of foreign exchange whilst encouraging local production of these items. The CBN also stated clearly that importation of these items are not banned, however importers of these items shall do so using their own funds without recourse to the Nigerian Foreign Exchange Markets.

The implication of this is that there will be reduced demand on the official market which means reduced pressure on the official FX market. However, there will be increased pressure on the parallel Market (Bureau de Change). The gap between the parallel and the official market will widen and the rate for dollars in the parallel market will increase. This will also lead to an increase in the cost of these items locally for consumers and ultimately inflation.

The Central Bank of Nigeria’s excluded some foreign products and services from the list of item qualified to get Foreign currencies at the Nigerian Foreign Exchange markets.

The effect of this directive is that businesses craving to import any of the delisted items would no longer be able to access foreign currencies from the Nigerian Foreign Exchange market in order to pay for the imported consignments.

First Steps in Understanding Volume Analysis and How It Leads Price

Fundamentally, volume is an estimation device that mirrors the general movement in an instrument in light of the quantity of purchasers and venders in the business sector. As it were, volume demonstrates the energy of purchasers or dealers amid a predefined period, and additionally the liquidity of the instrument. Despite the fact that volume might be shown distinctively on diagrams, it is commonly shown as a solitary, non-directional, histogram which speaks to the aggregate number of purchasers and merchants for a given period. Non-directional implies that as cost is making higher highs or lower lows, the volume bars will regularly be making new highs.

Average volume pointers speak to the general number of purchasers or merchants for each predetermined bar. A dealer may take a gander at this kind of volume representation to assess the liquidity of the instrument. This lets him know or her whether there is adequate action to empower one to enter or leave a position effortlessly.

Volume can likewise be shown as Volume Up (purchasers) or Volume Down (merchants). This sort of volume bar demonstrates the volume showed as two separate pointers, Volume Up (green histogram bars) and Volume Down (red histogram bars). By showing volume in this way, a merchant can contrast the purchasing volume with the offering volume for a predefined period.

By looking at the two volume shows, a broker can survey whether there is more energy appeared by the purchasers or by the merchants amid a predefined period. In an uptrend, purchasers ought to have more eagerness than dealers. At the point when a business sector achieves a top, purchasers will lose excitement and venders will assume control. In a downtrend, venders ought to have more energy than purchasers. At the base, venders will lose energy and purchasers will assume control.

The greatest issue for new dealers, when contemplating volume, is recognizing these particular examples – or volume dissimilarity as it is alluded to. The initial step is straightforward – understanding volume dissimilarity.

Volume uniqueness is when cost goes in one bearing and volume goes the other way. For instance, a couple sorts of volume dissimilarity that are uncovered when utilizing a non-directional volume marker (all volume histogram bars are plotted over a zero line):

Cost is making a higher highs

Volume is making lower highs

Cost is making approach highs

Volume is making higher highs

Cost is making lower lows

Volume is making higher lows

Cost is making level with lows

Volume is making higher lows

At the point when volume dissimilarity is recognized, then the merchant can expect a prompt fleeting inversion. For instance, when volume uniqueness happens on the highs, the dealer would envision an inversion to test for merchants. With the goal cost should invert and make a downtrend, venders must show interest. On the off chance that no interest is appeared, then cost will proceed on its unique way.

Similarly as with most other exchanging markers, volume can be as mind boggling or as basic as a merchant makes it. Today, there are numerous sorts of volume markers accessible. Some depend on midpoints of genuine exchanges of purchasers versus venders over a predefined period. Others depend on request stream, an estimation of purchasers versus merchants from real request stream. Some are more confounded than others and there is nobody volume pointer that is enchanted. The viability of a volume pointer is more needy upon how well the merchant can comprehend and translate the volume at any given period than on the marker itself.

How A CTA May Use Volatility To Set Protective Stops

A non-high-tech measure of *historical volatility is given by the range of market prices over the course of a trading interval, this is usually a day or a week. The range of prices is defined as the difference between the high and the low for that given trading interval. If the range of the current day lies beyond the range of the previous day (Gap- up or down) the current days range must include the distance between the current days range and yesterday’s close. This is what is referred to as the “True Range”. The true range for a gap-down day is the difference between yesterday’s settlement price and today’s low. On the flip side, the true range for a gap-up day is the difference between today’s high and the previous day’s settlement price.

To grind this down a bit further, a tick is the smallest increment by which prices can move in a given futures or commodity market. The next step would be to translate the dollar value for 1 tick in the given market being traded, (Ex: The minimum tick value in corn futures is $12.50 or ¼ cent). To use corn data as an example, data shows that 90 percent of all observations between 2004- 2014 had a daily true range equal to or less than 26 ¼ cents. Therefore a CTA who was long corn futures, may want to set a protective sell stop 26 ¼ cents below the previous days close, as the probability of being whip-sawed out of the market are 1 in 10. Similarly, a CTA who had short sold corn would want to set their stop at least 26 ¼ cents above the previous day’s closing price. The dollar value for this stop would be $1,312.50 per contract, in corn.

Now, instead of concentrating on the true range for a day or a week, it may be more suitable and efficient for a CTA to work with the average true range over the past “N” trading sessions, wherein “N” is any number found to be most effective through back testing their trading methodology (Ex: 9 days, 20 days, 4 weeks, etc.). The theory is that the range for the past “N” periods is a more reliable and consistent indicator of volatility as compared to the true range from the immediately preceding trading session. An example would be to calculate the average true range over the past 20 trading sessions in corn futures and to use this number for placing protective stops. As an aside, this philosophy could be flipped around and be used for entry, which I’ll cover in a future article.

As one last example this average true range methodology could be slightly modified by working with a fraction or multiple of the volatility estimate. Ex: A CTA might want to set their protective stop equal to 150 percent of the average true range for the past “N” trading sessions, (The famous Turtle traders used this methodology by taking the 20-day average true range and then setting their stops equal to 200 percent or 2x this number). The theory is that the fraction or multiple enhances and increases the probability of not being taken out of a valid trade due to market “noise”.

*Historical Volatility – HV’ is the realized volatility of a financial instrument over a given time period. Generally, this measure is calculated by determining the average deviation from the average price of a financial instrument in the given time period.