Confirmation.
What is 'Confirmation'
Confirmation is the use of an additional indicator or indicators to substantiate a trend suggested by one indicator. Since technical indicators are not perfect predictors of future price movements, a trader will often feel more secure deciding to act on a signal if more than one indicator is sending the same signal. If different indicators send conflicting signals, this is known as divergence.
Confirmation can also refer to a broker's written acknowledgment that a trade has been completed. These can be in electronic or paper form, and record information such as the date, price, commission, fees and settlement terms of the trade. They are normally sent within one week of the trade's completion.
BREAKING DOWN 'Confirmation'
Technical indicators fall into four broad categories: trend, momentum, volatility and volume. When seeking confirmation for a trade signal provided by one indicator, it is usually best to look to an indicator from a different category. Otherwise, the same or similar inputs will be counted multiple times, giving the illusion of confirmation when in fact little new information has been taken into account. Trend indicators include moving averages, moving average convergence divergence (MACD) and the parabolic SAR. Momentum indicators include the stochastic oscillator, the commodity channel index (CCI) and the relative strength index (RSI). Volatility indicators include Bollinger Bands, standard deviation and average true range. Volume indicators include the Chaikin Oscillator (also used to measure momentum), on-balance volume (OBV) and the volume rate of change.
For example, say a trader who notices a golden cross, which occurs when a short-term trend line, such as a 20-day moving average, crosses a longer-term trend line, such as a 50-day moving average, to the upside. This is a signal to buy the stock, based on trend indicators (the moving averages). Because this signal is not guaranteed to translate into a price rise going forward, the trader might seek confirmation from a different type of indicator. In this case, a high trading volume would reinforce the buy signal, while lower trade volumes might call it into question. The trader could check the OBV: a rising OBV would confirm the golden cross' bullish signal, while a flat or falling OBV would suggest that the price is nearing a top.
Confirmation Bias.
When seeking confirmation for a signal, investors should always be wary of confirmation bias, the tendency to set greater store by information that agrees with preconceived notions and to discard information that clashes with those notions. Of course, different sources of information will always send conflicting messages to some extent, but traders should take care not to discount divergent signals.

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Markit deploys electronic trade confirmation service for FX options.
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Financial information and technology provider Markit has today announced that it has launched a new service for electronic trade confirmation and exercise management for the FX options sector, which the firm will deploy via its trade processing service for OTC derivatives, MarkitSERV.
Backed by several of the world’s largest FX dealers including Barclays, Citi, HSBC, JP Morgan, Morgan Stanley, Nomura, RBS and UBS as well as a series of buy-side institutions, one of which is Citadel’s Global Fixed Income Fund, Markit considers that this post trade solution will help participants reduce operational risk and become more efficient in their management of FX options trades.
The new service will improve front and back office processes such as the inclusion of centralised generation of legal trade confirmations, straight-through-processing (STP) of exercise actions, realtime communication of exercise actions via an audited platform, and management of other lifecycle events based on a confirmed matched trade population.
James Bindler, global head of G10 foreign exchange at Citi, made a corporate statement that “Manually exercising FX options is a vestige from an earlier era of FX options trading. Automation of this process will help to reduce both uncertainty and risk in a market where volumes have grown substantially over the past years.”
Keith Tippell, managing director and head of FX processing at Markit, added “The FX options market needs a comprehensive, centralised solution for trade confirmation and exercise which reduces risk and improves efficiency. We have had great success in providing the industry with processing solutions in other markets such as rates and credit for over a decade, and we aim to become the venue where all participants come for FX confirmation and exercise.”
According to Markit, central confirmation of FX trades makes it more efficient for the FX market to comply with regulatory requirements, such as pairing unique trade identifiers for regulatory reporting, and provides a foundation for compliance with future FX regulation, such as requirements for clearing.
Markit intends to expand the service to provide legal confirmation for non deliverable forwards (NDFs). Doing so will complement its existing MarkitSERV clearing middleware service for NDFs.
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Fx options confirmation

Markit, the data provider, is launching an electronic trade confirmation and exercise management service for foreign exchange options to reduce processing costs and operational risk.
The service will be deployed by MarkitSERV, which processes an average of more than 80,000 over-the-counter derivative trade events every day.
Keith Tippell, managing director and head of FX processing at Markit, told Markets Media: “Looking across the broad spectrum of foreign exchange products, FX options stand out as having a high degree of manual processing.”
Tippell said it was difficult to name a launch date for the new service as the firm is currently consulting with market participants on their requirements. Firms working with Markit include Barclays, Citi, HSBC, JP Morgan, Morgan Stanley, Nomura, RBS, UBS and large buyside institutions such Citadel’s global fixed income fund according to a statement.
Foreign exchange trading reached an all-time high of $5.3 trillion in April 2013, 35% higher than in 2010, according to the 2013 Triennial Survey by the Bank for International Settlements. However processing of over-the-counter options remains inefficient due to their complexity and lack of standardisation.
James Bindler, global head of G10 foreign exchange at Citi, said in a statement: “Manually exercising FX options is a vestige from an earlier era of FX options trading. Automation of this process will help to reduce both uncertainty and risk in a market where volumes have grown substantially over the past years.”
“FX options are one of the most complex foreign exchange products traded in the market and central confirmation infrastructure from Markit will help drive normalization of the representation of trade terms,” added Tippell.
The new service will include front and back office processes such as centralised generation of legal trade confirmations, straight-through-processing of exercise actions and realtime communication of exercise actions via an audited platform.
Central confirmation of trades will also make it more efficient for the FX market to comply with new regulations requirements such as requirements for clearing.
“There is also broad interest in making confirmations more centralised for cash FX products such as forwards and swaps. There are significant risk mitigation and cost savings for the industry,” added Tippell.
Markit also intends to expand the new service to provide legal confirmation for non deliverable forwards to complement its existing MarkitSERV clearing middleware service for NDFs.
Feature image via iStock.
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