Be sure to sign up for out free trading newsletter!
It was with delight that I learnt about FX. When I was studying to be an MBA in Information Systems and Finance, I came across the wondrous world of FX. Which is a fancy term for Foreign Exchange. A nifty bit of jargon would be the age old word “currency”.
There are many interesting characteristics of forex. But the foremost to capture my imagination is the fact that several participants are almost unwilling participants. Compare that to the stock market where everyone is a willing participant. In the marketplace for foreign exchange, there are players such as banks that need to participate, as they have to clear international deals and international currency transactions.
Compared to any other single factor, this is what drives the money marketplacer. Like in any moderately sophisticated trading floor, the objective remains the same: find deals that can rapidly be converted into winning positions, usually within the day. This need to square off within one day is especially felt as there is a serious cost of carry and that margins need to be marked to the market at the end of each trading day.
And I use that term loosely, as the sun never sets on the money market As the earth rotates, there is someplace somewhere on the globe that is just encountering sunrise at any given point of time. All the same, there are a few major markets, London being at their center, where currency deals take place in the largest numbers.
Back to trading related discussion: foreign currency dealers are constantly on the lookout for situations where the pigs, i.e., people who must trade, will somehow subsidize their trade and help them turn a neat little profit.
This piece of wishful thinking has made many a trader’s life unhappy, but at the same time, I know of dozens of rather disciplined trade-professionals who have built themselves a neat little fortune trading in these Dollars, and Pounds, and Yens, and Euros, and Rupees, and Cruzeros, and god alone knows what other currency.
And if the word dollar is very familiar, remember there are many dollars to contend with. Are we talking about the dollar from the United States of America? Or is it from the down under Australia? Or is it emblazoned with the roaring lion from Singapore?
It takes far more than preliminary analysis to get started on quantifying returns on foreign currencies. This does not mean that exchange rates cannot be forecasted. For instance, I am writing this article at the very end of 2007. I can bet that the Indian Rupee will continue to secularly rise against the US Dollar for the next few years, say at least for the next three years.
So, am I going to be rich? Well, the rise is going to be so little and over such a long period of time, that I will not be able to make any real trading opportunity based on my forecast. And if you are reading this, please note that I am not giving you professional advice, but rather, thinking aloud.