Finding Success in Managed Forex

Everyday, more and more people are getting interested in engaging in currency trading. There are so many ways by which you can start trading in the foreign exchange market. If you are the type who cannot concentrate on forex trading for most part of the today, there is still a way for you to trade foreign currencies. You can resort to managed forex trading through opening a managed foreign exchange account. If you open this type of account, you will be entrusting your investment to a forex investment firm who will do all the trading for you. So all that is left for you to do is to wait for the day’s trading results.

Most managed forex trading accounts follow the hedge fund model in trading millions of dollars in client funds. In this type of account, a forex investment firm is primarily concerned about the preservation of its client’s funds. This simply means that a foreign exchange investment firm is there to protect the integrity of the capital of its clients while it works toward more consistent returns. So you can be better assured that over time, you will be able to build wealth with your partner firm or broker using tight money management principles and common sense.

However, there are currency exchange investment firms out there that have high leverage requirements. You must exercise caution in this kind of firms because their plan to achieve inflated advertised returns through high leverage requirements can be a very dangerous approach. This is why you should remember to work with forex money managers who understand how difficult it is to recuperate losses than to keep the downsides under control while waiting for the market to open opportunities for stable profits.

So make it a point to only deal with a managed forex investment firm that has live traders who can work on stringently managing your profits and losses while looking for opportunities to profit from trades. However, this sounds far easier said than done. This is why you should stick with dealing with investment firms that can guide you to having realistic investment goals and at the same time, has licensed managed foreign exchange money managers who have stable directions.

Only through dealing with licensed and reliable managed forex investment firms will you be able to ensure that your hard earned money is in safe hands. So if you need a money manager to help you more become successful in currency trading, open a managed account with a reputable forex investment firm.

A Basic Overview of Forex Signal

There are many different Forex signals that are used to help make proactive decisions when trading. If you are just entering the Forex trading market you will find that this market is volatile and moves very fast. Trades are made seven days a week, twenty-four hours a day. Without a strategy and plan, this can make it difficult to see gains consistently.


Avid Forex traders are making trades throughout the day and usually late into the night. The market is moving so fast that if you have pairs that are in a different time zone, you may be working during hours when everyone you know is asleep. Using Forex signals you will be able to compile information that will provide you with essential information on exits and entries when you are trading. Many Forex signals are also twenty-four hour information providers and must be monitored to stay on top of the trading market.


Many people who are just entering Forex employ the services of a signal service provider. These providers send alerts when there is a change in the pairs that you are following. When you decide your level of risk and set your buy/sell points, the provider will alert you when a pair has reached that point. This can significantly lower risk for the trader.

Candlestick signals are the most commonly used when you are working through the desktop of a broker. The candlestick predicts price movement, entry/exit points, trend reversals and more. When the candlestick signals are used with other important types of mass communication, a person can take proactive action when they are trading.

With some Forex website subscriptions, you will have a confirmation signal in addition to the candlestick signal. The confirmation signal confirms the direction trading activity. This signal, when interrupted correctly, can reduce risk on your trades. The confirmation signal is created using many technical indicators, news events and candlesticks.

Another signal that comes from the candlestick signal is the doji. This signal shows possible reversals in prices. When you have set your buy and sell limits, the doji will be helpful by showing the close/open price with long wicks on each end.

There are hundreds of signal providers that offer different types of services. These are usually subscription services that charge on a per-signal basis. Some individuals like the signal service providers because using this method takes a lot of the emotion out of trading. However, other people feel that they have only a partial need for a signal service such as when they are sleeping or on a trip.


If you know which pairs you are going to focus on, finding the signal service provider that specializes in those pairs will be more beneficial in successful trading than a service provider that has a broad stroke reporting system. There is a lot of information that must be compiled for each pair and when a provider is trying to gather information on all the pairs in trading, they will have a hard time being completely effective.

When using signals or any strategy, method, or technique, you will want to have resources in pairs that provide lower risk and medium risk. In this way when a trade goes south, you will not lose your entire portfolio.

A reputable signal service provider is very beneficial when you are going on a trip, are not near a computer, or need to sleep. The provider keeps sending you alerts that you can choose to act on and uses all of the Forex signals and indicators that are available to make sure that you are getting accurate information soon enough to take action on it.

Forex Expert Advisor

A Forex expert advisor is a system which is all set to give the best suggestions and advices in terms of trading in the market. They save you from facing huge losses due to severe market fluctuations. The best advisors are those that guide you with their superior software.

This particular software is a well known for its strategies made to examine the market for you and to trade for you. This software gives you all the knowledge related to various trades and acts as a protective shield for you. And more over softwares like metatrader comes absolutely free.

In this forex expert advisor software you will get strategies in 2 forms. One is in the long run whereas the other comes in the short run. Basically in the long run strategies, you generally follow the trends. But there is a huge possibility of risks also. But in case of the short run you get strategies where you can invest in many trades.

The best way to choose the expert advisory is by selecting those forex expert advisory softwares which follows both the short run and long run strategies. Also you must select that software which deals with all kind of currencies in the world. You must select those EA which is very flexible in any market situations.

Also you must not select those EA which offers you only one strategy. If you follow only one strategy in this fluctuating market then you will be in a deep problem. Consequently, you will have to face a huge risk. Therefore, select an advisor that offers both the strategies.

Some of the best forex expert advisor comes with a guarantee of money back and also offers you a big helping support system. So if you are a beginner in this field then you can get full help from this software.

Forward Exchange Rate

Forward exchange markets deal in promises to sell or buy foreign exchange at a specified rate, and at a specified time in the future with payment to be made upon delivery. These promises are known as forward exchange and the price is the forward exchange rate. Forward exchange markets do not operate during periods of hyperinflation.

The forward exchange market resembles the futures markets found in organized commodity markets, such as wheat and coffee. The primary function of forward market is to afford protection against the risk of fluctuations in exchange rates. Forward markets are most useful

• under flexible exchange rate system and if there are significant exchange variations,
  
• under fixed exchange rate system, if there is a strong possibility of devaluation/revaluation,

• it cannot function when exchange control is imposed.
  
• it cannot function during perids of hyperinflation.

Interest Parity Theory (Keynes)

When short term interests are higher in one market than in another, investors will be motivated to shift funds between markets, say New York and London. Investors borrow (or buy) a low interest currency and lend the same amount in a high interest currency. This is called carry trade. There is roughly a 5% difference in the interest rates between Japan and the US. To make profits from differeing interest rates, investors must convert, for example, dollars (a low interest currency) into pound sterling (a high interest currency) for investment in London. However, they would be exposed to an exchange risk. If the exchange rate is stable, the investors gain the interest differential, (i - i*), by shifting funds from New York to London.

If pound appreciates during the investment period, the foreign investors will reap additional gain in the change in the exchange rate. However, if pound depreciates, they will experience an exchange loss. The exchange loss may partially or more than offset the gain in the interest income.

To avoid this exchange loss, dollar investors want cover against the exchange loss by selling pound forward. The amount of forward pound to sell is equal to the purchase of spot pound plus the interest earned in London. This practice is called interest arbitrage. Interest arbitrage links the two national money markets and the forward market.

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The advantages of the Foreign Exchange Market

The daily volume of business dealt with on the foreign exchange markets in 1998 was estimated to be over $2.5 trillion dollars. (Daily volume on New York Stock Exchanges is about $20 billion) Today (2006) it may be about $5 trillion dollars. The daily volume of the foreign exchange market in North America in October 2005 was about $440 billion. The Foreign Exchange market expanded considerably since President Nixon closed the gold window and currencies were left afloat vis-á-vis other currencies and speculators could profit from their transactions.

Until recently, this market was used mostly by banks, who fully appreciated the excellent opportunities to increase their profits. Today, it is accessible to any investor enabling him to diversify his portfolio.

The emergence of Yen as a major currency, and new Euro, in addition to the Dollar beside many other currencies, and the frequent fluctuations in relative value of these currencies provide a great opportunity to generate substantial profits. Chinese Renminbi is convertible on current account, but not on capital account. When it becomes fully convertible, which is not likely to occur until 2020 or later, it will fundamentally affect the foreign exchange market due to its sheer volume.

The foreign exchange market operates 24 hours a day permitting intervention in the major international foreign exchange markets at any point in time.

Foreign Exchange Controls

Foreign exchange controls are various forms of controls imposed by a government on the purchase/sale of foreign currencies by residents or on the purchase/sale of local currency by nonresidents.

Common foreign exchange controls include:

• Banning the use of foreign currency within the country
• Banning locals from possessing foreign currency
• Restricting currency exchange to government-approved exchangers
• Fixed exchange rates
• Restrictions on the amount of currency that may be imported or exported

Countries with foreign exchange controls are also known as "Article 14 countries," after the provision in the International Monetary Fund agreement allowing exchange controls for transitional economies. Such controls used to be common in most countries, particularly poorer ones, until the 1990s when free trade and globalization started a trend towards economic liberalization. Today, countries which still impose exchange controls are the exception rather than the rule.

Fixed Exchange Rates

If a country treats the market for foreign exchange as any other market, allowing the marketplace determine the price of foreign money, it has a system of floating exchange rates. This is what most of the Western world has had since the 1970s. However, governments have often fixed prices in this market.1 In doing so they simultaneously establish price floors and price ceilings--they will neither let the price rise nor fall (except within a small range).

There are two ways a government can keep exchange rates fixed. One method, which has been common in less-developed nations, is called a fixed and unconvertible exchange rate because the exchange rate is fixed, but domestic currency cannot be freely converted into foreign money. Governments using it almost always set the price of foreign exchange below the market-clearing price (which means that they price their own currency too high), and thereby cause a shortage of foreign money. The government prevents the market from increasing price to eliminate this shortage by outlawing private transactions in foreign exchange and requiring citizens who obtain foreign exchange to sell it to the government. Because the government becomes the only legal source of foreign money, those who want to buy products from abroad must obtain those funds from the government, which rations these funds to those purposes it deems most worthy. Although this system is hard to justify on economic grounds, and is often evaded with extensive black-marketing, the system gives rulers a powerful tool to reward friends and punish enemies. We will not discuss this system further.

The second method is a fixed and convertible exchange rate. With this method a government does not abolish the private market for foreign exchange, but fixes exchange rates by standing ready to absorb any surpluses or to fill any shortages. During the 1950s and most of the 1960s, for example, the United States pegged the dollar to gold ($35.00 was equal to one ounce of gold), and most other countries had pegged their currencies to the dollar (the German Mark was fixed at four marks equal to one dollar for much of this time). The U.S. government would buy or sell gold at $35.00 per ounce to foreign governments on demand, and the German government would buy and sell dollars at a price of four marks per dollar.
Supply and demand analysis tells us that if the price of foreign exchange is set above the market-clearing price, there will be a surplus of foreign exchange (and a shortage of the domestic currency). At this price people will want to sell more foreign exchange than they want to buy. The government can prevent this surplus from lowering price by stepping into the market and buying the excess foreign exchange. On the other hand, if the price that the government sets is below the market-clearing price, there will be a shortage of foreign exchange called a balance of payments deficit. The government can prevent the shortage from raising price by selling foreign exchange into the market. The government can obtain this foreign exchange from reserves it stored up when there was a surplus, or by borrowing from other countries, or by selling assets such as gold. It should be obvious that a government can only fill a balance of payments shortage temporarily and that if it runs for too long, the country will run out of foreign exchange to provide to the market.

The attempt to estimate the size of the shortage or surplus of foreign exchange when countries fixed exchange rates was once of considerable importance, but no longer is now that most of the industrial world has floating exchange rates.

Currency Band

The currency band is a system of exchange rates by which a floating currency is backed by hard money.

A country selects a range, or "band", of values at which to set their currency, and returns to a fixed exchange rate if the value of their currency shifts outside this band. This allows for some revaluation, but tends to stabilize the currency's value within the band. In this sense, it is a compromise between a fixed (or "pegged") exchange rate and a floating exchange rate. For example, the exchange rate of the renminbi of the mainland of the People's Republic of China has recently been based upon a currency band; the European Economic Community's "snake in the tunnel" was a similar concept that failed, but ultimately led to the establishment of the European Exchange Rate Mechanism (ERM) and ultimately the Euro.

Floating Exchange Rate

A floating exchange rate or fluctuating exchange rate is a type of exchange rate regime wherein a currency's value is allowed to fluctuate according to the foreign exchange market. A currency that uses a floating exchange rate is known as a floating currency. It is not possible for a developing country to maintain the stability in the rate of exchange for its currency in the exchange market. There are two options open for them-  Let the exchange rate be allowed to fluctuate in the open market according to the market conditions, or  An equilibrium rate may be fixed to be adopted and attempts should be made to maintain it as far as possible. But, if there is a fundamental change in the circumstances, the rate should be changed accordingly. The rate of exchange under the first alternative is know as fluctuating rate of exchange and under second alternative, it is called flexible rate of exchange. In the modern economic conditions, the flexible rate of exchange system is more appropriate as it does not hamper the foreign trade. There are economists who think that, in most circumstances, floating exchange rates are preferable to fixed exchange rates. As floating exchange rates automatically adjust, they enable a country to dampen the impact of shocks and foreign business cycles, and to preempt the possibility of having a balance of payments crisis. However, in certain situations, fixed exchange rates may be preferable for their greater stability and certainty. This may not necessarily be true, considering the results of countries that attempt to keep the prices of their currency "strong" or "high" relative to others, such as the UK or the Southeast Asia countries before the Asian currency crisis. The debate of making a choice between fixed and floating exchange rate regimes is set forth by the Mundell-Fleming model, which argues that an economy cannot simultaneously maintain a fixed exchange rate, free capital movement, and an independent monetary policy. It can choose any two for control, and leave third to the market forces.

In cases of extreme appreciation or depreciation, a central bank will normally intervene to stabilize the currency. Thus, the exchange rate regimes of floating currencies may more technically be known as a managed float. A central bank might, for instance, allow a currency price to float freely between an upper and lower bound, a price "ceiling" and "floor". Management by the central bank may take the form of buying or selling large lots in order to provide price support or resistance, or, in the case of some national currencies, there may be legal penalties for trading outside these bounds.

Floating Currency

A floating currency is a currency that uses a floating exchange rate as its exchange rate regime. A floating currency is contrasted with a fixed currency.


In the modern world, the majority of the world's currencies are floating. Central banks often participate in the markets to attempt to influence exchange rates, but such interventions are becoming less effective and less important as the markets have become larger and less naive. Such currencies include the most widely traded currencies: the United States dollar, the euro, the Japanese yen, the British pound, the Swiss franc  and the Australian dollar. The Canadian dollar most closely resembles the ideal floating currency as the Canadian central bank has not interfered with its price since it officially stopped doing so in 1998. The US dollar runs a close second with very little changes in its foreign reserves; by contrast, Japan and the UK intervene to a greater extent. From 1946 to the early 1970s, the Bretton Woods system made fixed currencies the norm; however, in 1971, the United States government abandoned the gold standard, so that the US dollar was no longer a fixed currency, and most of the world's currencies followed suit.


A floating currency is one where targets other than the exchange rate itself are used to administer monetary policy. See open market operations.

The People's Republic of China recently unpegged their currency, which was formerly pegged to the US dollar, and allowed it to float within a carefully managed range of values relative to the dollar and other currencies.

Managing Your Foreign Exchange Risk

Once you have a clear idea of what your foreign exchange exposure will be and the currencies
involved, you will be in a position to consider how best to manage the risk. The options available
to you fall into three categories:
• Do Nothing: You might choose not to actively manage your risk, which means dealing in the
spot market whenever the cash flow requirement arises. This is a very high-risk and
speculative strategy, as you will never know the rate at which you will deal until the day and
time the transaction takes place. Foreign exchange rates are notoriously volatile and
movements make the difference between making a profit or a loss. It is impossible to properly
budget and plan your business if you are relying on buying or selling your currency in the
spot market.
• Take out a Forward Foreign Exchange Contract: As soon as you know that a foreign
exchange risk will occur, you could decide to book a forward foreign exchange contract with
your bank. This will enable you to fix the exchange rate immediately to give you the certainty
of knowing exactly how much that foreign currency will cost or how much you will receive at
the time of settlement whenever this is due to occur. As a result, you can budget with
complete confidence. However, you will not be able to benefit if the exchange rate then
moves in your favour as you will have entered into a binding contract which you are obliged
to fulfil. You will also need to agree a credit facility with your bank for you to enter into this
kind of transaction.

• Use Currency Options: A currency option will protect you against adverse exchange rate
movements in the same way as a forward contract does, but it will also allow the potential for
gains should the market move in your favour. For this reason, a currency option is often
described as a forward contract that you can rip up and walk away from if you don't need it.
Many banks offer currency options which will give you protection and flexibility, but this type
of product will always involve a premium of some sort. The premium involved might be a
cash amount or it could be factored into the pricing of the transaction.
Finally, you may consider opening a Foreign Currency Account if you regularly trade in a
particular currency and have both revenues and expenses in that currency as this will negate to
need to exchange the currency in the first place.
The method you decide to use to protect your business from foreign exchange risk will depend
on what is right for you but you will probably decide to use a combination of all three methods to
give you maximum protection and flexibility.

Importers, Exporters and Exchange Rates

If you are an Importer or Exporter, on the other hand, you will find yourself exposed to easily
identifiable form of foreign exchange risk known as 'Transactional' exposure. This arises from
your need to either buy or sell currency relating to a trade transaction in return for sterling.
Movements in exchange rates can work in your favour and enhance profitability but, equally, they
can have the opposite effect and seriously erode profit margins or lead to making a loss.

Foreign Exchane Option

In finance, a foreign exchange option (commonly shortened to just FX option or currency option) is a derivative financial instrument where the owner has the right but not the obligation to exchange money denominated in one currency into another currency at a pre-agreed exchange rate on a specified date; see Foreign Exchange derivative.

The FX options market is the deepest, largest and most liquid market for options of any kind in the world. Most of the FX option volume is traded OTC and is lightly regulated, but a fraction is traded on exchanges like the International Securities Exchange, Philadelphia Stock Exchange, or theChicago Mercantile Exchange for options on future contracts. The global market for exchange-traded currency options was notionally valued by the Bank for International Settlements at $158,300 billion in 2005

Corporations primarily use FX options to hedge uncertain future cash flows in a foreign currency. The general rule is to hedge certain foreign currency cash flows with forwards, and uncertain foreign cash flows with options.

Suppose a United Kingdom manufacturing firm is expecting to be paid US$100,000 for a piece of engineering equipment to be delivered in 90 days. If the GBP strengthens against the US$ over the next 90 days the UK firm will lose money, as it will receive less GBP when the US$100,000 is converted into GBP. However, if the GBP weaken against the US$, then the UK firm will gain additional money: the firm is exposed to FX risk. Assuming that the cash flow is certain, the firm can enter into a forward contract to deliver the US$100,000 in 90 days time, in exchange for GBP at the current forward rate. This forward contract is free, and, presuming the expected cash arrives, exactly matches the firm's exposure, perfectly hedging their FX risk.

If the cash flow is uncertain, the firm will likely want to use options: if the firm enters a forward FX contract and the expected USD cash is not received, then the forward, instead of hedging, exposes the firm to FX risk in the opposite direction.

Using options, the UK firm can purchase a GBP call/USD put option (the right to sell part or all of their expectedpounds sterling at a predetermined rate), which will: income for

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  protect the GBP value that the firm will receive in 90 day's time (presuming the cash is received)
  
  
  
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  cost at most the option premium (unlike a forward, which can have unlimited losses)
  
  
  
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  yield a profit if the expected cash is not received but FX rates move in its favor
  
  
  

Trading Opportunities

In Three Ways to Identify a Trend, GFT¹s Directors of Currency Research, Kathy Lien and
Boris Schlossberg, demonstrate how to use:

• ADX (Average Directional Index): to gauge the intensity of a trend¹s strength.
• Moving Averages: to track the average price of a currency pair over a specified period of time.
• Bollinger Bands: to forecast when a currency pair may enter or exit a trend.

Basic Facts Of Foreign Exchange

Currency exchange is the name given to the foreign exchange market. This market exchanges currency between countries allowing companies in one country to pay for products and services in another. This facilitates global trade and investments. If you are traveling to Europe, you go to your bank and exchange greenbacks for Euro dollars so that you have money to spend on your trip. Your bank bundles this exchange with others and then exchanges the bucks for Euros through currency exchange.

The foreign exchange market has no physical location and is open for business 24 hours per day between Monday morning in New Zealand through Friday night in the East. The average trading volume is over 3 trillion dollars a day. Profit margins are relatively low.

The majority of the traders are central and world banks, and international business firms.

In contrast, about 80% of the trading is done by the ten most active traders, which are huge international banks. These traders make up the top tier of the market. The difference between the bid and ask prices at these levels are extremely narrow and unavailable to the rest of the traders. These top tier traders account for 53% of total trading volume. Below the top tier are smaller invesment banks, big multi-national corporations and large hedge funds.

The market is split into tiers, with the 10 traders who do the most trading in the top tier. These are the huge international banks. The profit margins here are miniscule and the rate between the bid and ask costs are available only to this elite group. This accounts for approximately 53% of the trade volume. The following tier of investors includes large hedge funds, investment banks and global corporations.

There\’s no fixed exchange rate on currency exchange and it is feasible to get several different rates depending on what huge trader is trading. Rates also fluctuate based mostly on macroeconomic conditions and other considerations. Political conditions can have an extreme effect on rates of exchange.

Foreign exchange is a hopeful market. Although it might be less risky than high risk stock trading, as with any investment there is a potential for both gain and loss. When shake ups in the market occur, most traders head for the safest, or most stable currencies, like the Swiss franc. This drives the rate of exchange up on those currencies.

different types of trading instruments include the futures contract which is mostly for 3 months, and the spot exchange which is similar to a futures contract, but is routinely a two day exchange. The forward contract boundaries risk somewhat, because money doesn\’t change hands till a fixed upon date in the future. One type of forward contract involves a swap, where two parties exchange currencies for an agreed upon time period. The currency exchange option gives the holder the right, but not the requirement to exchange one currency for another an at a formerly agreed on rate of exchange on a pre set date. The option is equivalent to a stock option.

The foreign exchange market is intensely complex and with much less regulation than the exchange, more subject to abuses. It\’s advantages are its liquidity and the incontrovertible fact that it trades twenty four hours per day. This is a reasonably speculative investment and is going to be approached with caution by small investors. Before considering an investment in foreign exchange, you\’ll need to learn about the market and the best investment methods.

Introduction

The Foreign Exchange Market is vast in size and scope and exists to fulfil a number of purposes
ranging from the finance of cross-border investment, loans, trade in goods and services and of
course, currency speculation. Trading may be for "spot" or "forward" delivery. A spot contract is a
binding obligation to buy or sell a certain amount of foreign currency at the current market rate. A
forward contract is a binding obligation to buy or sell a certain amount of foreign currency at a
pre-agreed rate of exchange, on or before a certain date.

From Wikipedia

The foreign exchange market (currency, forex, or FX) trades currencies. It lets banks and other institutions easily buy and sell currencies.

The purpose of the foreign exchange market is to help international trade and investment. A foreign exchange market helps businesses convert one currency to another. For example, it permits a U.S. business to import European goods and pay Euros, even though the business's income is in U.S.dollers.

In a typical foreign exchange transaction a party purchases a quantity of one currency by paying a quantity of another currency. The modern foreign exchange market started forming during the 1970s when countries gradually switched to floting exchange rates from the previous exchange rate regime, which remained fixed as per the Bretton Wood System.

The foreign exchange market is unique because of

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  its trading volumes,
  
  
  
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  the extreme liquidity of the market,
  
  
  
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  its geographical dispersion,
  
  
  
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  its long trading hours: 24 hours a day except on weekends (from 20:15 UTC on Sunday until 22:00 UTC Friday),
  
  
  
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  the variety of factors that affect exchange rates .
  
  
  
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  the low margins of profit compared with other markets of fixed income (but profits can be high due to very large trading volumes)
  
  
  
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  the use of leverage