Tips for Trading Bitcoin and other Cryptocurrencies with Leverage

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Cryptocurrencies, Bitcoin, in particular, have become a haven for day traders in search of large returns within a short period of time. The number of Forex brokers offering digital assets for trading continues to grow by the day. So too does the number of cryptocurrencies within the trading platforms of brokers such as CryptoRocket. Here, we’ll discuss ways in which one can make the most of trading with modern digital coins, and also cover the topic of trading them with higher leverage ratios.

Among the most attractive perks of FX trading is the ability to trade using leverage. Leverage offers you the option to enter into larger trades using smaller amounts of capital. For example, a leverage ratio of 1:50 would represent the ability of the trader to enter into a position that is 50 times larger than the base capital amount. With this in mind, it’s easy to see how leverage can be used to generate larger profits without the need to trade with larger amounts of money.

It should be noted that the leverage maximums seen in modern trading platforms such as the one provided by CryptoRocket will not be as high as the maximums seen with standard currency pairs and other asset types. The reason for lower leverage caps with cryptocurrencies is the fact that these assets are among the most volatile of all. On average, the maximum leverage for an asset such as Bitcoin will be around 1:50. Even so, this should be more than enough to be beneficial in the quest to grow profits quickly.

An Example of Leverage In Action

The use of high leverage will mean one of two things — either higher returns or higher losses. Let’s discuss an example of how leverage works while trading. Here, we’ll assume that you’re starting out with $1 and will be using the leverage ratio of 1:50 to trade $50 on Bitcoin, with 1 pip being equal to 1/100 of one penny. Next, we’ll assume that that the price of Bitcoin moves in a favorable position, let’s say by 100 pips. In this example, the trade would provide a profit of $1, or 0.1 percent. Now let’s assume that the trade size was much larger, $1,000 rather than $1. In this case, using the same amount of favorable price movement, you’re $50,000 stake would yield a $5,000 return.

If we were to flip this example to the opposite potential outcome, the loss amount would be equal to the prospective profit amount. So, if you were to trade Bitcoin with leverage of 1:50, a trade valued at $50,000 in which the price of Bitcoin drops by 100 pips would equal a $5,000 loss. The potential of this being the outcome is why all traders are advised to use leverage wisely. The good news here is that with time and experience, it becomes much easier to know when or when not to use leverage, as well as how much leverage to actually utilize. Eventually, you will be able to make the decision with very little thought required.

Note that leverage works exactly the same when trading on downside price action, or going short on a trade. The difference, in this case, would be that you borrow on Bitcoin and not cash, with the goal being to sell them at peak price. Later, when you purchase the same Bitcoin from the downside at a cheaper price and return the Bitcoin that was originally borrowed, you then collect the difference, which would be profit. Should the price of Bitcoin start to climb rather than fall, you would then be forced to buy the asset back at the new higher level and repay the “loan” with interest.

Does Volatility Increase Risk on High Leverage?

There’s no doubt about it, the value of cryptocurrencies can change substantially. At one point, the value of Bitcoin had dropped by over $1,000. During this time, long-term investors were burned rather badly, while day traders were collecting huge profits by going short on the asset. It’s important to understand that many of these traders were using leverage to take home fantastically massive returns using a larger number of small trades. The moral of the story is that the day traders who profited most from this bearish period for Bitcoin fully understood that volatility did have the power to cause losses and therefore they borrowed less but traded more often to reach their profit goals.

Selecting the Optimal Leverage Ratio

The ability to select the most optimal leverage ratio when trading cryptocurrencies will be an important factor in determining your profitability.  This is why it is vitally important to select a broker such as CryptoRocket, which allows each trader to select a custom leverage ratio setting and change that setting as needed. In fact, traders are free to select from a ratio as low as 1:1, to a ratio as high as 1:500.

First and foremost, the selection should be based upon your trading experience. First time and beginner level traders should start out using a low leverage ratio, while seasoned traders can use higher leverage ratios. Secondly, your trading strategy should also be a consideration for deciding how much leverage to use. If your FX trading strategy centers around small price changes in short timeframes (otherwise known as scalping), then higher leverage settings can certainly benefit you. On the flip side, if your Forex strategy is centered on long term positions, super high leverage is usually not necessary.

Many new traders wonder if it is possible to trade forex without using any leverage. The answer to this question is yes, you certainly can. This holds true no matter who you choose to trade with, be it a broker, bank, cryptocurrency exchange, or other financial institution. The better question would be, do you really want to trade without leverage? If you’re flush with cash, then a leverage setting of 1:1 may be perfect for you, but for the majority of traders, leverage is needed in order to stretch trading dollars to the maximum. There are many things to consider when deciding on whether to use leverage and how much to use, but the primary question for most is, how quickly do you want to grow your profits? Without leverage, the process is likely to be quite slow.

High Leverage Forex Brokers

The Forex marketplace is well known for containing brokers such as CryptoRocket that are willing to extend high leverage to their clients. Online FX brokers provide leverage as a service to traders who want to use it. Leverage levels can vary substantially from broker to broker, ranging from as low as 1:1 to as high as 1:1000. With regards to cryptocurrencies though, retail FX brokers typically limit the maximum leverage setting to 1:30, or possibly 1:50. The same as with standard assets, the maximums will vary by cryptocurrency. Bitcoin may top out at 1:30, while Etherum may max out at 1:10. This will be ultimately be determined by the broker.

Take note that unregulated brokers are able to offer the highest ratios of all. Under ESMA regulation, European brokers can only offer up to 1:30. Forex brokers headquartered within the United States and fall under Commodity Futures Trading Commission (CFTC) regulation are limited to offering a maximum of 1:50 leverage ratio on all asset types. If you want to trade with the highest possible ratios, you’ll need to look to one or more of the unregulated yet reliable brokers. Fortunately, there are several well-established and reputable firms to choose from.

Bottom Line

FX leverage can be wonderful, but one should not forget that it also poses risks. A forex trading account can be depleted rather quickly when one trades without having a money management plan in place. It can also grow faster and larger than any other form of investment in the financial marketplaces. It is because of this that so many do choose to take advantage of the opportunity to combine higher ratios with volatile cryptocurrencies in particular. Their strong price, and oftentimes more predictable price movements are simply too attractive for a trader to ignore.

It is vitally important that you check with your broker prior to trading, asking them about the available leverage ratios, their specific margin requirements, and the ability to make changes to the ratios as you progress from a beginner level trader to intermediate and then to advanced. At the end of the day, it will be your job to settle on the leverage ratio and position size that best suits your personal trading strategies and level of risk tolerance. No two Forex traders are exactly the same.

Forex leverage should not be a source of contention. It should not cause panic and should not lead to any unnecessary losses. If you see that your current leverage ratio is negatively impacting your trading, you can always change to a different ratio. Brokers such as CryptoRocket actually allow traders to select from a wide variety of leverage settings. Once you have grasped the correct use of leverage, you can then increase the setting gradually and should at some point be able to utilize the maximum setting without concern. The absolute best case scenario is to be able to use the maximum setting on each and every trade, whether you choose to trade only cryptocurrencies or an entire host of asset types.

 

Posted on Forex blog.

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Japanese Yen In "No Man's Land." When will the BOJ Intervene to stop its rise?

This, according to a hedge fund manager that has decided to cancel all of his fund’s bearish bets on the Japanese Yen. The reason: the yen is rising, and it’s unclear when – or even if – the government will intervene to push it back down. Even though the yen’s strength is fundamentally illogical, it seems that investors are growing increasingly wary of betting against it.


As I pointed out in my previous post on the Yen (“Japanese Yen Strength is Illogical, but Does it Matter?“), the yen has actually fallen over the last twelve months, on a correlation weighted basis (though to be fair, it has staged a pretty impressive comeback since the beginning of April). Unfortunately, investors mainly care about how it is performing against a handful of key currencies, namely the US Dollar. Simply, the yen continues to rise against the dollar, and it is unclear when it will stop.

Japanese government analysis has indeed confirmed that “speculators” are behind the strong yen, as the alleged wide-scale repatriation of yen by Japanese insurance companies has yet to materialize. Of course, there isn’t really much doubt: Japan’s economy is contracting, due to decrease in output spurred by the tsunami. In May, it recorded its second largest monthly trade deficit ever.

Meanwhile, interest rates and bond yields are pathetically low, and the Bank of Japan is being urged to expand its asset buying program, which would theoretically result in a devaluation of the yen. As  a result, retail Japanese forex traders (nicknamed “Mrs. Watanabes“) have resumed shorting the Yen as part of a carry trade strategy.

Alas, speculators either don’t share their pessimism or are running out of patience. While everyone continues to assume that the BOJ will intervene if the Yen rises to 80 against the dollar, no one can be sure whether the line in the sand might not be 78 or even 75. At this point, intervention seems to hinge more on politics than on economics, which means predicting it is beyond the scope of this post. In other words, “There is too much uncertainty and volatility in markets right now to make that yen trade appealing.” And sure enough, the most recent Commitments of Traders data shows that speculators have been re-building their yen long positions over the last month.


In the end, the speculators are probably right. The Bank of Japan has intervened twice over the last twelve months, and the impact has always been short-lived. Besides, given that many speculators still remain committed to shorting the yen, it remains extraordinarily vulnerable to the kind of short squeeze that sent it soaring 5% in a single session en route to the record high it touched in March.

I’m personally still bearish on the yen, but I also think it’s too risky to short it against the dollar, which seems to be declining for its own reasons. As you can see from the chart below, the yen has fallen against virtually every other major currency. Yen shorters, then, might be wise to avoid the dollar altogether and focus instead on any number of other currencies.

http://www.bloomberg.com/news/2011-06-17/japan-recovery-means-boj-can-avoid-adding-stimulus-muto-says.html

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Japanese Yen In "No Man's Land." When will the BOJ Intervene to stop its rise?

This, according to a hedge fund manager that has decided to cancel all of his fund’s bearish bets on the Japanese Yen. The reason: the yen is rising, and it’s unclear when – or even if – the government will intervene to push it back down. Even though the yen’s strength is fundamentally illogical, it seems that investors are growing increasingly wary of betting against it.


As I pointed out in my previous post on the Yen (“Japanese Yen Strength is Illogical, but Does it Matter?“), the yen has actually fallen over the last twelve months, on a correlation weighted basis (though to be fair, it has staged a pretty impressive comeback since the beginning of April). Unfortunately, investors mainly care about how it is performing against a handful of key currencies, namely the US Dollar. Simply, the yen continues to rise against the dollar, and it is unclear when it will stop.

Japanese government analysis has indeed confirmed that “speculators” are behind the strong yen, as the alleged wide-scale repatriation of yen by Japanese insurance companies has yet to materialize. Of course, there isn’t really much doubt: Japan’s economy is contracting, due to decrease in output spurred by the tsunami. In May, it recorded its second largest monthly trade deficit ever.

Meanwhile, interest rates and bond yields are pathetically low, and the Bank of Japan is being urged to expand its asset buying program, which would theoretically result in a devaluation of the yen. As  a result, retail Japanese forex traders (nicknamed “Mrs. Watanabes“) have resumed shorting the Yen as part of a carry trade strategy.

Alas, speculators either don’t share their pessimism or are running out of patience. While everyone continues to assume that the BOJ will intervene if the Yen rises to 80 against the dollar, no one can be sure whether the line in the sand might not be 78 or even 75. At this point, intervention seems to hinge more on politics than on economics, which means predicting it is beyond the scope of this post. In other words, “There is too much uncertainty and volatility in markets right now to make that yen trade appealing.” And sure enough, the most recent Commitments of Traders data shows that speculators have been re-building their yen long positions over the last month.


In the end, the speculators are probably right. The Bank of Japan has intervened twice over the last twelve months, and the impact has always been short-lived. Besides, given that many speculators still remain committed to shorting the yen, it remains extraordinarily vulnerable to the kind of short squeeze that sent it soaring 5% in a single session en route to the record high it touched in March.

I’m personally still bearish on the yen, but I also think it’s too risky to short it against the dollar, which seems to be declining for its own reasons. As you can see from the chart below, the yen has fallen against virtually every other major currency. Yen shorters, then, might be wise to avoid the dollar altogether and focus instead on any number of other currencies.

http://www.bloomberg.com/news/2011-06-17/japan-recovery-means-boj-can-avoid-adding-stimulus-muto-says.html

http://cdn.socialtwist.com/2009021910542/script.jsSocialTwist Tell-a-Friend

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Japanese Yen In "No Man's Land." When will the BOJ Intervene to stop its rise?

This, according to a hedge fund manager that has decided to cancel all of his fund’s bearish bets on the Japanese Yen. The reason: the yen is rising, and it’s unclear when – or even if – the government will intervene to push it back down. Even though the yen’s strength is fundamentally illogical, it seems that investors are growing increasingly wary of betting against it.


As I pointed out in my previous post on the Yen (“Japanese Yen Strength is Illogical, but Does it Matter?“), the yen has actually fallen over the last twelve months, on a correlation weighted basis (though to be fair, it has staged a pretty impressive comeback since the beginning of April). Unfortunately, investors mainly care about how it is performing against a handful of key currencies, namely the US Dollar. Simply, the yen continues to rise against the dollar, and it is unclear when it will stop.

Japanese government analysis has indeed confirmed that “speculators” are behind the strong yen, as the alleged wide-scale repatriation of yen by Japanese insurance companies has yet to materialize. Of course, there isn’t really much doubt: Japan’s economy is contracting, due to decrease in output spurred by the tsunami. In May, it recorded its second largest monthly trade deficit ever.

Meanwhile, interest rates and bond yields are pathetically low, and the Bank of Japan is being urged to expand its asset buying program, which would theoretically result in a devaluation of the yen. As  a result, retail Japanese forex traders (nicknamed “Mrs. Watanabes“) have resumed shorting the Yen as part of a carry trade strategy.

Alas, speculators either don’t share their pessimism or are running out of patience. While everyone continues to assume that the BOJ will intervene if the Yen rises to 80 against the dollar, no one can be sure whether the line in the sand might not be 78 or even 75. At this point, intervention seems to hinge more on politics than on economics, which means predicting it is beyond the scope of this post. In other words, “There is too much uncertainty and volatility in markets right now to make that yen trade appealing.” And sure enough, the most recent Commitments of Traders data shows that speculators have been re-building their yen long positions over the last month.


In the end, the speculators are probably right. The Bank of Japan has intervened twice over the last twelve months, and the impact has always been short-lived. Besides, given that many speculators still remain committed to shorting the yen, it remains extraordinarily vulnerable to the kind of short squeeze that sent it soaring 5% in a single session en route to the record high it touched in March.

I’m personally still bearish on the yen, but I also think it’s too risky to short it against the dollar, which seems to be declining for its own reasons. As you can see from the chart below, the yen has fallen against virtually every other major currency. Yen shorters, then, might be wise to avoid the dollar altogether and focus instead on any number of other currencies.

http://www.bloomberg.com/news/2011-06-17/japan-recovery-means-boj-can-avoid-adding-stimulus-muto-says.html

http://cdn.socialtwist.com/2009021910542/script.jsSocialTwist Tell-a-Friend

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Japanese Yen In "No Man's Land." When will the BOJ Intervene to stop its rise?

This, according to a hedge fund manager that has decided to cancel all of his fund’s bearish bets on the Japanese Yen. The reason: the yen is rising, and it’s unclear when – or even if – the government will intervene to push it back down. Even though the yen’s strength is fundamentally illogical, it seems that investors are growing increasingly wary of betting against it.


As I pointed out in my previous post on the Yen (“Japanese Yen Strength is Illogical, but Does it Matter?“), the yen has actually fallen over the last twelve months, on a correlation weighted basis (though to be fair, it has staged a pretty impressive comeback since the beginning of April). Unfortunately, investors mainly care about how it is performing against a handful of key currencies, namely the US Dollar. Simply, the yen continues to rise against the dollar, and it is unclear when it will stop.

Japanese government analysis has indeed confirmed that “speculators” are behind the strong yen, as the alleged wide-scale repatriation of yen by Japanese insurance companies has yet to materialize. Of course, there isn’t really much doubt: Japan’s economy is contracting, due to decrease in output spurred by the tsunami. In May, it recorded its second largest monthly trade deficit ever.

Meanwhile, interest rates and bond yields are pathetically low, and the Bank of Japan is being urged to expand its asset buying program, which would theoretically result in a devaluation of the yen. As  a result, retail Japanese forex traders (nicknamed “Mrs. Watanabes“) have resumed shorting the Yen as part of a carry trade strategy.

Alas, speculators either don’t share their pessimism or are running out of patience. While everyone continues to assume that the BOJ will intervene if the Yen rises to 80 against the dollar, no one can be sure whether the line in the sand might not be 78 or even 75. At this point, intervention seems to hinge more on politics than on economics, which means predicting it is beyond the scope of this post. In other words, “There is too much uncertainty and volatility in markets right now to make that yen trade appealing.” And sure enough, the most recent Commitments of Traders data shows that speculators have been re-building their yen long positions over the last month.


In the end, the speculators are probably right. The Bank of Japan has intervened twice over the last twelve months, and the impact has always been short-lived. Besides, given that many speculators still remain committed to shorting the yen, it remains extraordinarily vulnerable to the kind of short squeeze that sent it soaring 5% in a single session en route to the record high it touched in March.

I’m personally still bearish on the yen, but I also think it’s too risky to short it against the dollar, which seems to be declining for its own reasons. As you can see from the chart below, the yen has fallen against virtually every other major currency. Yen shorters, then, might be wise to avoid the dollar altogether and focus instead on any number of other currencies.

http://www.bloomberg.com/news/2011-06-17/japan-recovery-means-boj-can-avoid-adding-stimulus-muto-says.html

http://cdn.socialtwist.com/2009021910542/script.jsSocialTwist Tell-a-Friend

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Color Market Profile Based on Bullish/Bearish Bars

Our Market Profile indicator has received another major update today — version 1.13 implements the following changes:

Market Profile blocks (TPO’s) can now be colored according to whether the original bar is bullish or bearish in contrast to the bar being older or newer. This might be useful to quickly recognize whether a trend in the price zone was slow or fast:

Market Profile run in MT5 Strategy Tester on EUR/USD @ M5 timeframe for a daily trading session with TPO's colored according to the origin bar being bullish or bearish - cyan or magenta.

Warnings about incorrect combination of timeframe and MP session can now be disabled via input parameters. This might come handy when you are actively using Market Profile on one timeframe but also often switch the chart to some other timeframes to check the price action there. This will not make MP work with unsupported timeframe/session combo, but it will help you to get rid of the pesky alert pop-ups.

Value Area High, Value Area Low, and Point of Control rates are now printed to the left of the profile for reference by default. You can turn this feature off, change the numbers’ color, and alter the font size using the input parameters.

VAH, VAL, and POC rates marked up on Market Profile

In MetaTrader 5, input parameters are now grouped for better user experience when dealing with inputs. Unfortunately, MT4 doesn’t support input groups yet.

Market Profile input parameters are grouped in MetaTrader 5

You can get the code of the MT5 and MT4 versions or read more info about this market profile indicator.

If you find any bugs in this MetaTrader indicator or if you want to make a suggestion regarding its functionality, please use the commentary form below.

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EUR/USD Extends Gains on Disappointing US Data

EUR/USD continued to rise today as the majority of macroeconomic reports released in the United States over the trading session were disappointing, missing expectations.

Philadelphia Fed manufacturing index dropped from 12.0 to 5.6 in October, below the forecast level of 7.3. (Event A on the chart.)

Housing starts and building permits decreased in September. Housing starts were at a seasonally adjusted annual rate of 1.26 million in September, down from 1.39 million in August. Building permits were at a seasonally adjusted annual rate of 1.39 million, down from 1.43 million in the previous month. The median forecast was at 1.32 million for housing starts and 1.34 million for building permits. (Event A on the chart.)

Initial jobless claims were at the seasonally adjusted level of 214k last week, up from the previous week’s unrevised value of 210k. It was slightly above the analysts’ median forecast of 212k. (Event A on the chart.)

Both industrial production and capacity utilization decreased in September. Industrial production fell 0.4%, whereas experts had predicted a smaller decline of 0.1%. The increase in the previous month got a positive revision from 0.6% to 0.8%. Capacity utilization fell from 77.9% to 77.5%, below the forecast value of 77.7%. (Event B on the chart.)

US crude oil inventories swelled by 9.3 million barrels last week, far more than analysts had predicted — 2.7 million barrels, and were above the five-year average for this time of year. The week before, the stockpiles increased by 2.9 million barrels. Total motor gasoline inventories decreased by 2.6 million barrels but remained above the five-year average. (Event C on the chart.)

If you have any comments on the recent EUR/USD action, please reply using the form below.

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EUR/USD Struggles to Resume Rebound

EUR/USD was attempting to resume its bounce after yesterday’s decline. While the currency pair was rising till 10:15 GMT, it has reversed its movement afterward. The attempt to bounce after the disappointing US macroeconomic data was short-lived and the EUR/USD pair continued to move lower, though it is still trading above the opening level currently.

PPI fell 0.3% in September, while market participants were expecting it to rise 0.1%, the same as in August. (Event A on the chart.)

Yesterday, a report on consumer credit was released, showing an increase of $17.9 billion in August. That is compared with the forecast increase of $14.9 billion and the previous month’s gain of $23.0 billion (revised down from $23.3 billion). (Not shown on the chart.)

If you have any comments on the recent EUR/USD action, please reply using the form below.

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Japanese Yen In "No Man's Land." When will the BOJ Intervene to stop its rise?

This, according to a hedge fund manager that has decided to cancel all of his fund’s bearish bets on the Japanese Yen. The reason: the yen is rising, and it’s unclear when – or even if – the government will intervene to push it back down. Even though the yen’s strength is fundamentally illogical, it seems that investors are growing increasingly wary of betting against it.


As I pointed out in my previous post on the Yen (“Japanese Yen Strength is Illogical, but Does it Matter?“), the yen has actually fallen over the last twelve months, on a correlation weighted basis (though to be fair, it has staged a pretty impressive comeback since the beginning of April). Unfortunately, investors mainly care about how it is performing against a handful of key currencies, namely the US Dollar. Simply, the yen continues to rise against the dollar, and it is unclear when it will stop.

Japanese government analysis has indeed confirmed that “speculators” are behind the strong yen, as the alleged wide-scale repatriation of yen by Japanese insurance companies has yet to materialize. Of course, there isn’t really much doubt: Japan’s economy is contracting, due to decrease in output spurred by the tsunami. In May, it recorded its second largest monthly trade deficit ever.

Meanwhile, interest rates and bond yields are pathetically low, and the Bank of Japan is being urged to expand its asset buying program, which would theoretically result in a devaluation of the yen. As  a result, retail Japanese forex traders (nicknamed “Mrs. Watanabes“) have resumed shorting the Yen as part of a carry trade strategy.

Alas, speculators either don’t share their pessimism or are running out of patience. While everyone continues to assume that the BOJ will intervene if the Yen rises to 80 against the dollar, no one can be sure whether the line in the sand might not be 78 or even 75. At this point, intervention seems to hinge more on politics than on economics, which means predicting it is beyond the scope of this post. In other words, “There is too much uncertainty and volatility in markets right now to make that yen trade appealing.” And sure enough, the most recent Commitments of Traders data shows that speculators have been re-building their yen long positions over the last month.


In the end, the speculators are probably right. The Bank of Japan has intervened twice over the last twelve months, and the impact has always been short-lived. Besides, given that many speculators still remain committed to shorting the yen, it remains extraordinarily vulnerable to the kind of short squeeze that sent it soaring 5% in a single session en route to the record high it touched in March.

I’m personally still bearish on the yen, but I also think it’s too risky to short it against the dollar, which seems to be declining for its own reasons. As you can see from the chart below, the yen has fallen against virtually every other major currency. Yen shorters, then, might be wise to avoid the dollar altogether and focus instead on any number of other currencies.

http://www.bloomberg.com/news/2011-06-17/japan-recovery-means-boj-can-avoid-adding-stimulus-muto-says.html

http://cdn.socialtwist.com/2009021910542/script.jsSocialTwist Tell-a-Friend

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