In 2010, a triennial report released by the Bank of
International Settlements said that the daily volume of foreign exchange trading was USD4.1 trillion. This was a
28% growth rate since 2007.
More recently, CLS
Bank released figures saying that the daily volume of
foreign exchange trading reached USD5.12 trillion in June
2011, breaking a previous record set in March 2010. This turnover was
Twenty p.c. higher than the same time last year.
So why has there been
a rise in foreign exchange trading?
The 28% increase
between 2007 and 2010 was partially credited to the
world financial crisis: as stock exchanges fell in 2008, the forex market became more popular . As currencies are
always traded in pairs, one will always be moving against another,
giving the opportunity for traders to
profit at any point, financial crisis or not.
As for the 2011
increase, this has been attributed to the Greek crisis, as the near default increased trading on the unsteady euro.
And, although the austerity vote was passed, talks about a 2nd bailout program are still happening. Setting Greece apart, eurozone members
Portugal, Italy, Ireland and Spain also have high sovereign debt
proportions, with expectancies that Italy could be the
next to suffer following the spike in Italian bond yields on July 8, 2011.
Another
reason for the record volume of foreign exchange
trades is the press conference held by Ben Bernanke on June 22,
2011, in which he conceded US weakness and announced
that the Fed had reduced the midpoint of
its 2011 GDP outlook growth range to 2.8% ( in
Jan it was 3.7% ), alongside enlarging its
end-2011 outlook unemployment and inflation rates. He
also announced that the 2nd round of
quantitative easing would expire at the end of the
month, and that was not likely to be followed by a 3rd round.
Following the press
conference there was a swift fall in stock costs matched by
a rise in the USD.
But the June rise in forex trading is not characteristic, as the
Northern Hemisphere's summer months are
sometimes a slow trading period. So it will be fascinating to see what Sep holds, as
this is historically the time when market
participants return from their summer
holidays. And it is also when the next tranche of aid will
be paid to Greece. This means that, even if the
currency market slows over the following
2 months, it is likely to come back with a
bang.
Remember that CFDs and forex are leveraged products and can result in losses that exceed your 1st deposit. CFD trading may not be appropriate for everybody, so please ensure that you fully understand the risks concerned.
Wednesday, July 27, 2011
Monday, July 25, 2011
Insure your portfolio using stock indices
Stock index CFDs
offer a handy way to hedge existing stock positions in
erratic markets; as CFDs can be traded long or
short traders are able to open a short position
on an index that is representative of their stock portfolio, knowing that any losses in
their stock portfolio will be balanced by their index CFD position.
As an example, a
backer might hold a balanced stock portfolio across the
Australian market. He is anxious about
short term volatility and his assets
falling in value but doesn't want to
sell his positions as he expects the market to trend
up over the long term.
As an alternative he comes to a
decision to offset possible losses by opening a short
position on the Australia 200 Index. As an index is a
probabilistic measure of the value of a
bunch of stock, it will rise and fall with the
changing cost of individual shares.
He sells, or goes short on, numerous Australia 200 contracts, realizing
that now his share position is hedged if the market fluctuates. For
every dollar he loses on his share portfolio, he will gain a dollar on his Australia 200 position.
Similarly, for every dollar he loses on his index position,
he'll gain a dollar on his share
portfolio.
From here there are three possible
scenarios: the stock and index appreciate in
value, the stock and index decline in
value, or the stock and index trade sideways.
One. The stock and index go up in value
The market continues trending upwards, and his
portfolio is soon worth another 10,000.
However, as the investor had sold the Australia 200 with the hope that it would go down, he has made
a loss of the same quantity on that position. If he
suspects the market will continue to go up,
he could close his Australia 200 position and continue
enjoying to profits of his share
portfolio. If he still thinks there are unstable times
ahead, he could keep that position open, realizing that
any possible losses will be counterbalanced
by his share portfolio.
Two. The stock and index fall in
value
If the investor loses 20,000 across his
portfolio, he will make the same profit on his
Australia 200 index CFD position, which would annul
those losses. Once he believes the price has bottom out, he could close
the index position, taking those profits and holding onto the stock
until its price raises again.
Three. The stock and index remain flat
The trader won't
have made a profit or loss on either trade.
Index CFDs are a helpful tool
for safeguarding existing investments against price
fluctuations, and CFDs generally are a neat method to quickly diversify your portfolio with minimum
capital needs. That being said, this strategy is a
market-neutral strategy, meaning that although you will
not make a loss, you will not make a profit either
for as long as both positions are open. Hedging can lower
profit potential, but as it also
limits losses, it can reward traders with a steadier flow
of profit over time.
Remember that CFDs and forex are leveraged products and can result in losses that exceed your first deposit. CFD trading may not be appropriate for everybody, so please make sure you understand the risks concerned.
offer a handy way to hedge existing stock positions in
erratic markets; as CFDs can be traded long or
short traders are able to open a short position
on an index that is representative of their stock portfolio, knowing that any losses in
their stock portfolio will be balanced by their index CFD position.
As an example, a
backer might hold a balanced stock portfolio across the
Australian market. He is anxious about
short term volatility and his assets
falling in value but doesn't want to
sell his positions as he expects the market to trend
up over the long term.
As an alternative he comes to a
decision to offset possible losses by opening a short
position on the Australia 200 Index. As an index is a
probabilistic measure of the value of a
bunch of stock, it will rise and fall with the
changing cost of individual shares.
He sells, or goes short on, numerous Australia 200 contracts, realizing
that now his share position is hedged if the market fluctuates. For
every dollar he loses on his share portfolio, he will gain a dollar on his Australia 200 position.
Similarly, for every dollar he loses on his index position,
he'll gain a dollar on his share
portfolio.
From here there are three possible
scenarios: the stock and index appreciate in
value, the stock and index decline in
value, or the stock and index trade sideways.
One. The stock and index go up in value
The market continues trending upwards, and his
portfolio is soon worth another 10,000.
However, as the investor had sold the Australia 200 with the hope that it would go down, he has made
a loss of the same quantity on that position. If he
suspects the market will continue to go up,
he could close his Australia 200 position and continue
enjoying to profits of his share
portfolio. If he still thinks there are unstable times
ahead, he could keep that position open, realizing that
any possible losses will be counterbalanced
by his share portfolio.
Two. The stock and index fall in
value
If the investor loses 20,000 across his
portfolio, he will make the same profit on his
Australia 200 index CFD position, which would annul
those losses. Once he believes the price has bottom out, he could close
the index position, taking those profits and holding onto the stock
until its price raises again.
Three. The stock and index remain flat
The trader won't
have made a profit or loss on either trade.
Index CFDs are a helpful tool
for safeguarding existing investments against price
fluctuations, and CFDs generally are a neat method to quickly diversify your portfolio with minimum
capital needs. That being said, this strategy is a
market-neutral strategy, meaning that although you will
not make a loss, you will not make a profit either
for as long as both positions are open. Hedging can lower
profit potential, but as it also
limits losses, it can reward traders with a steadier flow
of profit over time.
Remember that CFDs and forex are leveraged products and can result in losses that exceed your first deposit. CFD trading may not be appropriate for everybody, so please make sure you understand the risks concerned.
Saturday, July 23, 2011
Improve your forex trading with panic selling
Panic selling is the
wide-scale selling of a currency pair
springing from trader fear.
This
regularly takes place when an event
occurs , forcing forex traders to
re-evaluate the forex pair's worth ,eg a negative company statement or an
economic crisis. Regularly when the event behind the panic-selling was a predicted event
rather than an actual event ( i.e. : talk about an
investigation, rumours of poor company figures, or
an analyst opinion), panic-selling can
spring from short-term traders pushing
prices down to trigger the stop losses of weaker traders. This
creates wonderful opportunities for
traders to open positions when the price has hit rock bottom,
ready for it to rise again.
When panic-selling, most forex traders just wish to escape from the trade
regardless of the price at which they sell.
The
process of panic-selling
One. An event
occurs to cause an currency pair price to speedily
drop.
Two. A day
occurs when there's a significant
volume of selling and purchasing, as
buyers and sellers attempt to take control of the trend:
purchasers try to push the price up,
and sellers try to keep it droping. Usually
the price fall plateaus on this day.
Three. If no
significant trend change occurs in step Two,
the currencypair price continues trending the same way,
though at
a lower volume.
Four. Steps
Two and Three repeat themselves until there's a
high-volume day which results in a long or short-term trend reversal.
Five. The process
continues until a long-term trend is established.
How to profit from panic-selling?
FX traders can profit
from panic-selling by selling currency pairs at the start of a sell-off, and purchasing
them back when the price bottoms-out, or by waiting for the price to
hit rock bottom, purchasing the pair at the low
price and selling them later once the price
is trending up again.
The exhausted selling
model ( ESM ) uses trendlines, volume, moving averages and chart patterns to
figure out when a price has hit rock
bottom. The rules of the ESM are:
What about panic-buying?
In
theory, panic-buying would be the exact
opposite of
panic-selling: the wide-scale purchasing of a
forex pairspringing from investor
trepidation,
with most traders just wanting to
go into the trade, not caring about the price at which they buy.
Nevertheless it's much
more difficult to identify panic
buying than panic selling, as it is generally
assumed that traders buy based on risk and return assessment, and set stop losses and profit
boundaries when they open a trade.
This is not
necessarily right: panic
buying happens when traders fear losing out
on the profits that everybody else is
making, and this fear hinders them from
evaluating and opening a trade based on their trading method. One example would be the
panic buying in the silver market from Jan 28 to
Apr 25 2011: buyers drove costs from
USD26.40 per oz to USD49.80 per oz, a gain of almost
90%.
Then, in the first
week of May, over 1/2 those gains
evaporated in just 4 trading sessions. The
existence of panic buying means that traders can profit on it as
well as on panic selling if we use an exhausted buying model (
the complete opposite of the ESM ), it might make it clear
that :
To
sum up
Panic selling ( and
panic buying ) creates great trading
chances for traders who are educated and alert.
The technical indicators in the ESM offer an
effective method for building
the best entry point for going long ( or going short, in the case of panic
buying ), and the incontrovertible fact that the model uses 1 or
2 technical indicators can protect traders from
costly mistakes.
Remember that CFDs and forex are leveraged products and can result in losses that exceed your 1st deposit. CFD trading may not be appropriate for everybody, so please ensure that you fully understand the risks concerned.
wide-scale selling of a currency pair
springing from trader fear.
This
regularly takes place when an event
occurs , forcing forex traders to
re-evaluate the forex pair's worth ,eg a negative company statement or an
economic crisis. Regularly when the event behind the panic-selling was a predicted event
rather than an actual event ( i.e. : talk about an
investigation, rumours of poor company figures, or
an analyst opinion), panic-selling can
spring from short-term traders pushing
prices down to trigger the stop losses of weaker traders. This
creates wonderful opportunities for
traders to open positions when the price has hit rock bottom,
ready for it to rise again.
When panic-selling, most forex traders just wish to escape from the trade
regardless of the price at which they sell.
The
process of panic-selling
One. An event
occurs to cause an currency pair price to speedily
drop.
Two. A day
occurs when there's a significant
volume of selling and purchasing, as
buyers and sellers attempt to take control of the trend:
purchasers try to push the price up,
and sellers try to keep it droping. Usually
the price fall plateaus on this day.
Three. If no
significant trend change occurs in step Two,
the currencypair price continues trending the same way,
though at
a lower volume.
Four. Steps
Two and Three repeat themselves until there's a
high-volume day which results in a long or short-term trend reversal.
Five. The process
continues until a long-term trend is established.
How to profit from panic-selling?
FX traders can profit
from panic-selling by selling currency pairs at the start of a sell-off, and purchasing
them back when the price bottoms-out, or by waiting for the price to
hit rock bottom, purchasing the pair at the low
price and selling them later once the price
is trending up again.
The exhausted selling
model ( ESM ) uses trendlines, volume, moving averages and chart patterns to
figure out when a price has hit rock
bottom. The rules of the ESM are:
- The forex pair price must first
speedily decline on high volume - A volume spike will occur,
making a new low, and seem to reverse the trend - A higher low wave must occur
- A break of the downward trendline must
occur ( i.e. : the price must break the trendline resistance ) - The Forty and / or Fifty day moving
averages must be damaged - The Forty and / or Fifty day moving
averages must be retested and must hold
What about panic-buying?
In
theory, panic-buying would be the exact
opposite of
panic-selling: the wide-scale purchasing of a
forex pairspringing from investor
trepidation,
with most traders just wanting to
go into the trade, not caring about the price at which they buy.
Nevertheless it's much
more difficult to identify panic
buying than panic selling, as it is generally
assumed that traders buy based on risk and return assessment, and set stop losses and profit
boundaries when they open a trade.
This is not
necessarily right: panic
buying happens when traders fear losing out
on the profits that everybody else is
making, and this fear hinders them from
evaluating and opening a trade based on their trading method. One example would be the
panic buying in the silver market from Jan 28 to
Apr 25 2011: buyers drove costs from
USD26.40 per oz to USD49.80 per oz, a gain of almost
90%.
Then, in the first
week of May, over 1/2 those gains
evaporated in just 4 trading sessions. The
existence of panic buying means that traders can profit on it as
well as on panic selling if we use an exhausted buying model (
the complete opposite of the ESM ), it might make it clear
that :
- The forex pair price must first
rapidly spike on high volume - A volume spike will happen,
creating a new high, and appear to reverse the trend - A lower high wave must happen
- A break of the upward trendline must
happen - The 40 and / or 50 day moving
averages must be broken - The 40 and / or 50 day moving
averages must be retested and must hold
To
sum up
Panic selling ( and
panic buying ) creates great trading
chances for traders who are educated and alert.
The technical indicators in the ESM offer an
effective method for building
the best entry point for going long ( or going short, in the case of panic
buying ), and the incontrovertible fact that the model uses 1 or
2 technical indicators can protect traders from
costly mistakes.
Remember that CFDs and forex are leveraged products and can result in losses that exceed your 1st deposit. CFD trading may not be appropriate for everybody, so please ensure that you fully understand the risks concerned.
Tuesday, July 19, 2011
A beginner's guide to market bubbles
A bubble is when an asset, economy or market has a huge price spike, exceeding what is
considered to be its fundamental value by a
huge margin. Bubbles are sometimes identified retrospectively, often after
there was a crash of the cost of
the economy, market or asset in query.
The damage caused
by the burst of the bubble is dependent upon
the economic sector or sectors concerned: the
bursting of the US housing bubble in 2008 caused a world
financial crisis, because most banks and fiscal
establishments in America and Europe held many billions
of dollars worth of subprime mortgage-backed securities.
The 5 steps of a bubble
Economic guru Hyman P Minsky identified 5 stages in a
credit cycle: displacement, boom, euphoria, profit taking and panic and this
general pattern is fairly consistent across bubbles in
varied sectors.
Stage 1 Displacement
Displacement
happens when investors become
enthused
with something new: state-of-the-art technology in the
dot-com bubble, tulips in tulip mania ( a bubble in the 17th century where the
popularity of tulips climbed so
swiftly that tulips started selling for over ten times
the yearly salary of talented
craftsmen. Within months of the bubble bursting, tulips were selling
for One / Hundredth of their top prices ), or traditionally
low interest rates, as in the USA in June 2003, which started the
increase to the 2008 housing bubble.
Stage Two Boom
Following a
displacement, prices start
climbing slowly. They gain momentum as more
traders enter the market, causing the
asset to draw in far-reaching coverage, then panic buying, which forces prices to record highs.
Stage Three Euphoria
Prices
skyrocket: in the 1989 real-estate bubble in Japan, land
in Tokyo sold for up to USD139,000 per square foot. At
the peak of the web bubble in March Two
thousand, the mixed value of the technology stocks on the Naz was larger
than the GDP of most states.
During the euphoric
phase, new valuation measures are promoted to justify the
spike in prices.
Stage Four Profit taking
By this time,
talented traders start selling their positions and taking profits
sensing the bubble is going to burst. Nevertheless
determining the moment of collapse can be complicated and, if you miss it, you've most probably missed your opportunity to take
profits for good.
Stage Five Panic
At that point, prices fall as speedily as
they originally rose. Traders faced with margin calls and the falling values of
their assets start panic selling: running from their
investments at any price. Supply soon overwhelms demand, and
prices plunge.
In the 1989 Japanese
real estate bubble, real estate
lost nearly Eighty percent of its inflated
value, while stock prices fell by Seventy pc. Similarly, in October 2008, following the
collapse of Lehman Brothers, and the almost-collapse of
Fannie Mae, Freddie Mac and AIG, the SP 500 plunged nearly
17% in that month. That month, world equity markets lost
USD9.3 trillion, or 22% for their mixed market capitalisation.
Conclusion
Being familiar with the stages of a bubble, whether it's in
the stock, forex, commodities or bonds
market, may help you identify
the subsequent one, and getting out before your profits
vanish.
Remember that CFDs and forex are geared products and may lead to losses that surpass your first deposit. CFD trading might not be suitable for everyone, so please make sure you understand the risks involved.
considered to be its fundamental value by a
huge margin. Bubbles are sometimes identified retrospectively, often after
there was a crash of the cost of
the economy, market or asset in query.
The damage caused
by the burst of the bubble is dependent upon
the economic sector or sectors concerned: the
bursting of the US housing bubble in 2008 caused a world
financial crisis, because most banks and fiscal
establishments in America and Europe held many billions
of dollars worth of subprime mortgage-backed securities.
The 5 steps of a bubble
Economic guru Hyman P Minsky identified 5 stages in a
credit cycle: displacement, boom, euphoria, profit taking and panic and this
general pattern is fairly consistent across bubbles in
varied sectors.
Stage 1 Displacement
Displacement
happens when investors become
enthused
with something new: state-of-the-art technology in the
dot-com bubble, tulips in tulip mania ( a bubble in the 17th century where the
popularity of tulips climbed so
swiftly that tulips started selling for over ten times
the yearly salary of talented
craftsmen. Within months of the bubble bursting, tulips were selling
for One / Hundredth of their top prices ), or traditionally
low interest rates, as in the USA in June 2003, which started the
increase to the 2008 housing bubble.
Stage Two Boom
Following a
displacement, prices start
climbing slowly. They gain momentum as more
traders enter the market, causing the
asset to draw in far-reaching coverage, then panic buying, which forces prices to record highs.
Stage Three Euphoria
Prices
skyrocket: in the 1989 real-estate bubble in Japan, land
in Tokyo sold for up to USD139,000 per square foot. At
the peak of the web bubble in March Two
thousand, the mixed value of the technology stocks on the Naz was larger
than the GDP of most states.
During the euphoric
phase, new valuation measures are promoted to justify the
spike in prices.
Stage Four Profit taking
By this time,
talented traders start selling their positions and taking profits
sensing the bubble is going to burst. Nevertheless
determining the moment of collapse can be complicated and, if you miss it, you've most probably missed your opportunity to take
profits for good.
Stage Five Panic
At that point, prices fall as speedily as
they originally rose. Traders faced with margin calls and the falling values of
their assets start panic selling: running from their
investments at any price. Supply soon overwhelms demand, and
prices plunge.
In the 1989 Japanese
real estate bubble, real estate
lost nearly Eighty percent of its inflated
value, while stock prices fell by Seventy pc. Similarly, in October 2008, following the
collapse of Lehman Brothers, and the almost-collapse of
Fannie Mae, Freddie Mac and AIG, the SP 500 plunged nearly
17% in that month. That month, world equity markets lost
USD9.3 trillion, or 22% for their mixed market capitalisation.
Conclusion
Being familiar with the stages of a bubble, whether it's in
the stock, forex, commodities or bonds
market, may help you identify
the subsequent one, and getting out before your profits
vanish.
Remember that CFDs and forex are geared products and may lead to losses that surpass your first deposit. CFD trading might not be suitable for everyone, so please make sure you understand the risks involved.
Saturday, July 16, 2011
Forex Trading: Trading the AUD
According to the
International Monetary Fund, in 2010 Australia ranked thirteenth
internationally in terms of GDP, 20th
for the value of its exports, and fiftieth for the size of its
population.
Yet, in
spite of only having 0.33% of the planet's
population, the Australian dollar is among the 5 most
frequently traded currencies in the foreign exchange
market. The popularity of the Australian dollar among
foreign exchange traders is due to
geography, the land, and government
policy.
Geography
Australia is the most
approvingly situated Western country re south-east Asia. Higher populations and growing economies have
led to an insatiable demand for
resources, and Australia's resources are the most accessible. India and China have potent
impacts on Australia's trade and business performance,
along with the value of the Australian dollar in
the foreign exchange market, with the Asian
countries importing Australian commodities and Australia importing
Indian and Chinese machinery and consumer
products.
The
land
Australia has an
enormous range of coveted natural resources such as gold, diamonds, oil, uranium, nickel, iron ore, agricultural
goods and coal.
Government policy
Australian government
policy has led to a stable central authority and
economy, and a lack of intervention in the foreign
exchange market, along with a Western approach to
business and regulation that has not always been
typical of the Asia-Pacific area.
The Reserve Bank of
Australia ( RBA ) is quite conservative and does not
intermediate frequently in the foreign
exchange market. And, due to inflationary concerns, the RBA has
maintained Australia's interest rates as some of the highest in the developed
world. In foreign exchange, high
interest rates make the Australian dollar a
popular currency with traders who use the carry trade,
sometimes pairing it with a low-yielding currency like
the JPY.
Factors that impact the Australian
dollar
Along with
the economic and political variables that impact
foreign exchange rates, some elements are totally unique to the Australian dollar.
Economically,
Australia stands out due to its heavy dependence on
commodities, with mining representing over Five pc of its GDP
and agriculture representing 12%. Although this
dependence led to Australia weathering the
global financial crisis better than many western economies, Australia
has never developed a robust manufacturing
sector; leading to a great amount of foreign debt,
a large current account deficit
and high interest rates.
As Australia's
economy is driven by commodities; reports on weather, crop planting,
crops, metal costs and mine output; all
impact the Australian dollar, therefore are valuable
to fx traders trading on
the Australian dollar.
This
dependency also makes the Australian dollar exposed to changes in the Asian markets,
especially India and China, with export
demands pushing the Australian dollar higher, only to fall when the demand
fades.
Higher commodity
costs often create inflationary pressures in
developed countries, leading to the Australian economy
looking healthier for foreign
exchange traders when resource costs raise concerns
about the sustainability of expansion in
Japan, North America and Europe. This also makes the
Australian dollar a preferred
alternative for traders needing to go long on commodity
exposure and / or Asian resource demand.
The Australian dollar and fx
Most major developed
currencies trend up and back down together, partly
due to trade links between them. The Australian
dollar, by contrast, enjoys some
autonomy from other important currencies: its health is
closer linked to commodity costs and commodity price volatility
is mirrored in AUD
volatility.
This means the
AUD is likely to
continue to trade based on commodity costs, and it
is not likely to lose its
importance in the forex market, even
as the Chinese yuan becomes more important.
Remember that CFDs and forex are leveraged products and can lead to losses that exceed your 1st deposit. CFD trading may not be appropriate for everybody, so please ensure that you fully understand the risks concerned.
International Monetary Fund, in 2010 Australia ranked thirteenth
internationally in terms of GDP, 20th
for the value of its exports, and fiftieth for the size of its
population.
Yet, in
spite of only having 0.33% of the planet's
population, the Australian dollar is among the 5 most
frequently traded currencies in the foreign exchange
market. The popularity of the Australian dollar among
foreign exchange traders is due to
geography, the land, and government
policy.
Geography
Australia is the most
approvingly situated Western country re south-east Asia. Higher populations and growing economies have
led to an insatiable demand for
resources, and Australia's resources are the most accessible. India and China have potent
impacts on Australia's trade and business performance,
along with the value of the Australian dollar in
the foreign exchange market, with the Asian
countries importing Australian commodities and Australia importing
Indian and Chinese machinery and consumer
products.
The
land
Australia has an
enormous range of coveted natural resources such as gold, diamonds, oil, uranium, nickel, iron ore, agricultural
goods and coal.
Government policy
Australian government
policy has led to a stable central authority and
economy, and a lack of intervention in the foreign
exchange market, along with a Western approach to
business and regulation that has not always been
typical of the Asia-Pacific area.
The Reserve Bank of
Australia ( RBA ) is quite conservative and does not
intermediate frequently in the foreign
exchange market. And, due to inflationary concerns, the RBA has
maintained Australia's interest rates as some of the highest in the developed
world. In foreign exchange, high
interest rates make the Australian dollar a
popular currency with traders who use the carry trade,
sometimes pairing it with a low-yielding currency like
the JPY.
Factors that impact the Australian
dollar
Along with
the economic and political variables that impact
foreign exchange rates, some elements are totally unique to the Australian dollar.
Economically,
Australia stands out due to its heavy dependence on
commodities, with mining representing over Five pc of its GDP
and agriculture representing 12%. Although this
dependence led to Australia weathering the
global financial crisis better than many western economies, Australia
has never developed a robust manufacturing
sector; leading to a great amount of foreign debt,
a large current account deficit
and high interest rates.
As Australia's
economy is driven by commodities; reports on weather, crop planting,
crops, metal costs and mine output; all
impact the Australian dollar, therefore are valuable
to fx traders trading on
the Australian dollar.
This
dependency also makes the Australian dollar exposed to changes in the Asian markets,
especially India and China, with export
demands pushing the Australian dollar higher, only to fall when the demand
fades.
Higher commodity
costs often create inflationary pressures in
developed countries, leading to the Australian economy
looking healthier for foreign
exchange traders when resource costs raise concerns
about the sustainability of expansion in
Japan, North America and Europe. This also makes the
Australian dollar a preferred
alternative for traders needing to go long on commodity
exposure and / or Asian resource demand.
The Australian dollar and fx
Most major developed
currencies trend up and back down together, partly
due to trade links between them. The Australian
dollar, by contrast, enjoys some
autonomy from other important currencies: its health is
closer linked to commodity costs and commodity price volatility
is mirrored in AUD
volatility.
This means the
AUD is likely to
continue to trade based on commodity costs, and it
is not likely to lose its
importance in the forex market, even
as the Chinese yuan becomes more important.
Remember that CFDs and forex are leveraged products and can lead to losses that exceed your 1st deposit. CFD trading may not be appropriate for everybody, so please ensure that you fully understand the risks concerned.
Tuesday, July 12, 2011
HVAC Manual J Load Calculation – Green in Your Wallet, Green on the Earth
The Air Conditioning Contractors
of America (ACCA) is the nation's largest organization of
heating, ventilation, and air conditioning (HVAC) contractors. As such, they
have compiled several different manuals to set an industry standard
for how certain processes are run. Manual J, for
example, sets criteria for load analysis and how
much power should be dedicated to an HVAC system in order to heat
or cool a specific home. While this is a great way to standardize
the HVAC industry, there are other benefits
as well. Using an ACCA certified Residential Manual J8 load calculation software can also save energy and even
help the environment.
Back in 1986, Bill Wright and the
ACCA partnere to develop the world's first HVAC Manual J load analysis
residential software. This software made load calculations according
to Manual J guidelines much more user friendly and more accurate.
The development of this software made it possible for contractors to not only calculate a load more rapidly, but also to
make the most efficient use of the space in a home, and to design
the most efficient possible comfort system for that home. This was a
huge leap forward in the heating and cooling industry because it
prevented the waste of time, material, and energy in the conditioning of a home.
In conserving the amount of
energy it would henceforth take to heat and cool a home, this HVAC Manual J
load calculation software continues to help the industry to
stop from wasting materials, and to stop homeowners from wasting energy.
This not only saves them from spending money on wasted materials, but
also on wasted energy. The utility savings alone could add up to a
significant amount of money for the homeowner, but it also helps the homeowner
to save money in other ways that they might not even have considered
when they first asked for a Manual J8load calculation.
By installing an HVAC system that
has been designed with HVAC Manual J load calculation software, the homeowner
may qualify for certain rebates and tax credits under green initiatives
and programs such as EnergyStar, Built Green, and Leadership in Energy and
Environmental Design (LEED). So the savings that a homeowner could potentially
have by purchasing a system designed with this kind of load
calculation software could be quite significant. No wonder it's
quickly becoming more and more prevalent in the HVAC industry. It's
good for the green in your wallet, but it's also good for the green on the
Earth.
Savoy Engineering Group offers ACCA Certified Manual J8 Load Calculations, Manual S HVAC equipment selection & Manual D Duct Design services performed by Masters level engineer using ACCA Certified WrightSoft Universal software based on Manual J8. Savoy Engineering Group has been providing Manual J, S & D service for 6 yrs & has completed 3,500+ projects. We are Fast, Accurate& Affordable!
of America (ACCA) is the nation's largest organization of
heating, ventilation, and air conditioning (HVAC) contractors. As such, they
have compiled several different manuals to set an industry standard
for how certain processes are run. Manual J, for
example, sets criteria for load analysis and how
much power should be dedicated to an HVAC system in order to heat
or cool a specific home. While this is a great way to standardize
the HVAC industry, there are other benefits
as well. Using an ACCA certified Residential Manual J8 load calculation software can also save energy and even
help the environment.
Back in 1986, Bill Wright and the
ACCA partnere to develop the world's first HVAC Manual J load analysis
residential software. This software made load calculations according
to Manual J guidelines much more user friendly and more accurate.
The development of this software made it possible for contractors to not only calculate a load more rapidly, but also to
make the most efficient use of the space in a home, and to design
the most efficient possible comfort system for that home. This was a
huge leap forward in the heating and cooling industry because it
prevented the waste of time, material, and energy in the conditioning of a home.
In conserving the amount of
energy it would henceforth take to heat and cool a home, this HVAC Manual J
load calculation software continues to help the industry to
stop from wasting materials, and to stop homeowners from wasting energy.
This not only saves them from spending money on wasted materials, but
also on wasted energy. The utility savings alone could add up to a
significant amount of money for the homeowner, but it also helps the homeowner
to save money in other ways that they might not even have considered
when they first asked for a Manual J8load calculation.
By installing an HVAC system that
has been designed with HVAC Manual J load calculation software, the homeowner
may qualify for certain rebates and tax credits under green initiatives
and programs such as EnergyStar, Built Green, and Leadership in Energy and
Environmental Design (LEED). So the savings that a homeowner could potentially
have by purchasing a system designed with this kind of load
calculation software could be quite significant. No wonder it's
quickly becoming more and more prevalent in the HVAC industry. It's
good for the green in your wallet, but it's also good for the green on the
Earth.
Savoy Engineering Group offers ACCA Certified Manual J8 Load Calculations, Manual S HVAC equipment selection & Manual D Duct Design services performed by Masters level engineer using ACCA Certified WrightSoft Universal software based on Manual J8. Savoy Engineering Group has been providing Manual J, S & D service for 6 yrs & has completed 3,500+ projects. We are Fast, Accurate& Affordable!
Is it better to have Pegged or Floating Forex Rates?
Open economies in a world market are confronted with three
objectives:
1.
Stabilising the foreign
exchange rate
2.
Benefitting fromglobal
capital mobility
3.
Tailoring financial policy for
domestic needs
Unfortunately, although these goals may
be desirable, they are contradictory.
Fixed foreign exchange rates
stabilise the foreign exchange rate while engaging
in domestically-oriented financial policy. That being
said, fixed foreign exchange rates don't coincide with enjoying international capital
mobility, which is where floating exchange rates come
in.
Fixed foreign-exchange rates
A fixed
foreign-exchange rate is when a currency's
price is pegged to the value of another currency, group of
currencies, or another asset, like gold. Fixed foreign
exchange rates were used internationally from 1944
to 1973, but now fixed foreign exchange rates
are principally used by small
countries with economies that are essentially
dependent on foreign partners.
Fixed
exchange rates are
intermittently evaluated for political
and commercial reasons, either being revaluated or
devaluated. A devaluation in a fixed exchange rate lowers
the value of the fixed currency, making exports more
enticing to foreign investors as they become cheaper when their value is converted into the investors'
currencies. This also discourages imports as imported goods
get more expensive due to the foreign exchange rate, the final
target being to increase trade surpluses while decreasing trade
deficits.
A revaluation raises
the value of the fixed currency, causing the opposite scenario to
happen.
Floating foreign-exchange rates
Floating forex rates are when a currency's price
changes dependent on factors in the foreign
exchange market , including the currency's
economy, financier sentiment, politics, inflation and rate derivatives.
This is the most
common regime for major economies with two
variants: free floating currencies and managed
floating currencies.
The value of free
floating currencies is solely determined by foreign
exchange market forces and can fluctuate
seriously, providing opportunities for traders to
profit on rising and falling currency values.
Managed floating
currencies are allowed to float to a certain
extent, and will be reined in by the central bank if
it travels too far away from ideal levels.
That being said, each floating exchange rate is managed, at least a bit. If a currency goes too far off course, that country's
central bank will reply by changing interest rates or by
purchasing and selling big quantities of currency to bring its currency back to
sufficient levels.
Pegged vs. Floating forex rates
Pegged
foreign exchange rates benefit from reduced risks in
world trade and investment as
world purchasers and sellers can
consent to an amount that won't be vulnerable
to forex rate changes. Pegged
foreign exchange rates can introduce tougher
economic management, keeping inflation under
control, and they can also reduce speculation, which can on
occasion be destabilising to less-established economies.
Nevertheless the
drawbacks of pegged foreign
exchange rates are that there's no automatic
balance of payments between nations without state
interference ; large holdings of forex reserves are
necessary to maintain the pegged rate ; the need to maintain the exchange rate can dominate
monetary policy, which may be better
targeted on other matters ; and
pegged foreign exchange rates can be unstable,
resulting in different rates of inflation causing imbalances between the levels of competition between
different nations.
Countries with
floating foreign exchange rates benefit from
permitting the market to quickly respond to
industrial events, in opposition
to waiting for the central bank's reaction. As the forex market is open 24-hours a day, free floating currencies can
react very quickly to significant
reports. This also results in automatic
correction in balance of payments adjustments as the exchange rates
adjust to balance supply and demand.
As this
will be taken care of
instantly, governments should have more time to
give policy to other issues.
As floating rates
change mechanically, they don't suffer
from international relations crises that will plague
nations with pegged forex
rates when pressure mounts on a currency to devalue or revalue.
And
nations with floating foreign exchange rates can
have lower forex reserves.
Nonetheless
floating foreign exchange rates result in
unsteadiness and uncertainty when talking about world trade, as fluctuations
may end up in changing prices for imports
and exports. This uncertainty can also lead straight to an absence of foreign investment. Having
said that, this risk can be hedged by trading with forward transactions.
Floating foreign exchange rates may lead to
unruly economic management as inflation isn't
punished, and governments may follow inflationary economic policies.
Nonetheless
the drawback of this is that severe shocks
may cause a currency to plunge, magnifying the economic
damage. And, as speculation is higher in floating exchange rate systems,
there's more uncertainty for forex traderes and investors. A floating exchange rate may also cause inflation by permitting import prices
to rise as the exchange rate falls.
Improve your forex knowledge and learn to place a fx trade online. Remember that CFDs and forex are geared products and may lead to losses that surpass your initial deposit. CFD trading might not be suitable for everyone, so please make sure that you understand completely the risks.
objectives:
1.
Stabilising the foreign
exchange rate
2.
Benefitting fromglobal
capital mobility
3.
Tailoring financial policy for
domestic needs
Unfortunately, although these goals may
be desirable, they are contradictory.
Fixed foreign exchange rates
stabilise the foreign exchange rate while engaging
in domestically-oriented financial policy. That being
said, fixed foreign exchange rates don't coincide with enjoying international capital
mobility, which is where floating exchange rates come
in.
Fixed foreign-exchange rates
A fixed
foreign-exchange rate is when a currency's
price is pegged to the value of another currency, group of
currencies, or another asset, like gold. Fixed foreign
exchange rates were used internationally from 1944
to 1973, but now fixed foreign exchange rates
are principally used by small
countries with economies that are essentially
dependent on foreign partners.
Fixed
exchange rates are
intermittently evaluated for political
and commercial reasons, either being revaluated or
devaluated. A devaluation in a fixed exchange rate lowers
the value of the fixed currency, making exports more
enticing to foreign investors as they become cheaper when their value is converted into the investors'
currencies. This also discourages imports as imported goods
get more expensive due to the foreign exchange rate, the final
target being to increase trade surpluses while decreasing trade
deficits.
A revaluation raises
the value of the fixed currency, causing the opposite scenario to
happen.
Floating foreign-exchange rates
Floating forex rates are when a currency's price
changes dependent on factors in the foreign
exchange market , including the currency's
economy, financier sentiment, politics, inflation and rate derivatives.
This is the most
common regime for major economies with two
variants: free floating currencies and managed
floating currencies.
The value of free
floating currencies is solely determined by foreign
exchange market forces and can fluctuate
seriously, providing opportunities for traders to
profit on rising and falling currency values.
Managed floating
currencies are allowed to float to a certain
extent, and will be reined in by the central bank if
it travels too far away from ideal levels.
That being said, each floating exchange rate is managed, at least a bit. If a currency goes too far off course, that country's
central bank will reply by changing interest rates or by
purchasing and selling big quantities of currency to bring its currency back to
sufficient levels.
Pegged vs. Floating forex rates
Pegged
foreign exchange rates benefit from reduced risks in
world trade and investment as
world purchasers and sellers can
consent to an amount that won't be vulnerable
to forex rate changes. Pegged
foreign exchange rates can introduce tougher
economic management, keeping inflation under
control, and they can also reduce speculation, which can on
occasion be destabilising to less-established economies.
Nevertheless the
drawbacks of pegged foreign
exchange rates are that there's no automatic
balance of payments between nations without state
interference ; large holdings of forex reserves are
necessary to maintain the pegged rate ; the need to maintain the exchange rate can dominate
monetary policy, which may be better
targeted on other matters ; and
pegged foreign exchange rates can be unstable,
resulting in different rates of inflation causing imbalances between the levels of competition between
different nations.
Countries with
floating foreign exchange rates benefit from
permitting the market to quickly respond to
industrial events, in opposition
to waiting for the central bank's reaction. As the forex market is open 24-hours a day, free floating currencies can
react very quickly to significant
reports. This also results in automatic
correction in balance of payments adjustments as the exchange rates
adjust to balance supply and demand.
As this
will be taken care of
instantly, governments should have more time to
give policy to other issues.
As floating rates
change mechanically, they don't suffer
from international relations crises that will plague
nations with pegged forex
rates when pressure mounts on a currency to devalue or revalue.
And
nations with floating foreign exchange rates can
have lower forex reserves.
Nonetheless
floating foreign exchange rates result in
unsteadiness and uncertainty when talking about world trade, as fluctuations
may end up in changing prices for imports
and exports. This uncertainty can also lead straight to an absence of foreign investment. Having
said that, this risk can be hedged by trading with forward transactions.
Floating foreign exchange rates may lead to
unruly economic management as inflation isn't
punished, and governments may follow inflationary economic policies.
Nonetheless
the drawback of this is that severe shocks
may cause a currency to plunge, magnifying the economic
damage. And, as speculation is higher in floating exchange rate systems,
there's more uncertainty for forex traderes and investors. A floating exchange rate may also cause inflation by permitting import prices
to rise as the exchange rate falls.
Improve your forex knowledge and learn to place a fx trade online. Remember that CFDs and forex are geared products and may lead to losses that surpass your initial deposit. CFD trading might not be suitable for everyone, so please make sure that you understand completely the risks.
Monday, July 11, 2011
Fx trading: Different Instruments
Spot fx Transactions
A spot foreign exchange
transaction is exchanging one currency for another at the
present exchange rate.
The currencies are exchanged at the spot rate at the
time of the contract, and the contract is mostly settled
within two working days, involves money
rather than a contract, and interest isn't included in
the transaction.
Forward/Future fx Transactions
Forward transactions are agreements to sell or buy a foreign currency at an agreed
upon price at a future date. The greatest difference between a
forward and a future is that a future is traded on exchanges, and
typically has a contract length of three
months.
Forwards are frequently
used to hedge foreign-exchange
risks, as by agreeing upon an exchange rate at the time of the contract,
you are protected from possible exchange rate fluctuations.
The party agreeing to buy the currency in the future takes on a long position,
while the party agreeing to sell the currency takes on a short position.
Swap fx Transactions
In a forex swap, two parties exchange
currencies for a definite length of time and consent to reverse the transaction by exchanging the same amount of currency later. Swaps permit you to use funds in one
currency to fund needs in another, without
shouldering a foreign-exchange
risk.
A foreign exchange swap is usually
structured with a spot foreign exchange
transaction, then a forward foreign exchange
transaction.
Options Trading when fx trading
A foreign exchange option is gives the owner the right
but not the obligation to either sell or buy a stated quantity of currency at a certain exchange
rate. This exchange rate is sometimes known as the strike price.
American options can be exercised on or prior to
the option expiry date, while European options can only be exercised on the
expiry date.
If the owner
selects not to exercise the option, he will lose his deposit.
Options are
frequently utilized to hedge against foreign-exchange risks, with corporations
often hedging certain foreign currency money flows
with forwards, and uncertain foreign money flows with
options.
Shall we say a Chinese manufacturer
has ordered some Australian materials for CNY3,000,000, in a contract where the
delivery and payment are both due in ninety days. The
prevailing exchange rate is 6.9456 yuan per dollar, so the CNY3,000,000 will equate to AUD431,928.13 when converted. If the yuan
rises to 7.1200 against the dollar over the
next month, the Australian company will lose potential
profits as it'll receive only receive AUS421,348.31 when the currency
is converted at the new rate. On the other hand, if the yuan declines to 6.8500,
the Australian company's profits will rise to AUD437,956.20.
If the deal
and, subsequently, the CNY3,000,000, is sure, the Australian company could enter into a forward
contract to sell the parts for CNY3,000,000 in ninety days at the
prevailing exchange rate, shielding
both firms from the forex risk.
If the deal
is uncertain, the Australian company might prefer to use
options. Using options rather than a forward will protect the Australian
company's profits (presuming the money is received), yield a
nice profit if the predicted money isn't
received but the forex rates move in its
favour, and cost at most an option premium (unlike forwards,
which can have unlimited losses).
Remember that CFDs and forex are geared products and may result in losses that surpass your initial deposit. CFD trading might not be suitable for everyone, so please make sure that you understand completely the risks involved.
A spot foreign exchange
transaction is exchanging one currency for another at the
present exchange rate.
The currencies are exchanged at the spot rate at the
time of the contract, and the contract is mostly settled
within two working days, involves money
rather than a contract, and interest isn't included in
the transaction.
Forward/Future fx Transactions
Forward transactions are agreements to sell or buy a foreign currency at an agreed
upon price at a future date. The greatest difference between a
forward and a future is that a future is traded on exchanges, and
typically has a contract length of three
months.
Forwards are frequently
used to hedge foreign-exchange
risks, as by agreeing upon an exchange rate at the time of the contract,
you are protected from possible exchange rate fluctuations.
The party agreeing to buy the currency in the future takes on a long position,
while the party agreeing to sell the currency takes on a short position.
Swap fx Transactions
In a forex swap, two parties exchange
currencies for a definite length of time and consent to reverse the transaction by exchanging the same amount of currency later. Swaps permit you to use funds in one
currency to fund needs in another, without
shouldering a foreign-exchange
risk.
A foreign exchange swap is usually
structured with a spot foreign exchange
transaction, then a forward foreign exchange
transaction.
Options Trading when fx trading
A foreign exchange option is gives the owner the right
but not the obligation to either sell or buy a stated quantity of currency at a certain exchange
rate. This exchange rate is sometimes known as the strike price.
American options can be exercised on or prior to
the option expiry date, while European options can only be exercised on the
expiry date.
If the owner
selects not to exercise the option, he will lose his deposit.
Options are
frequently utilized to hedge against foreign-exchange risks, with corporations
often hedging certain foreign currency money flows
with forwards, and uncertain foreign money flows with
options.
Shall we say a Chinese manufacturer
has ordered some Australian materials for CNY3,000,000, in a contract where the
delivery and payment are both due in ninety days. The
prevailing exchange rate is 6.9456 yuan per dollar, so the CNY3,000,000 will equate to AUD431,928.13 when converted. If the yuan
rises to 7.1200 against the dollar over the
next month, the Australian company will lose potential
profits as it'll receive only receive AUS421,348.31 when the currency
is converted at the new rate. On the other hand, if the yuan declines to 6.8500,
the Australian company's profits will rise to AUD437,956.20.
If the deal
and, subsequently, the CNY3,000,000, is sure, the Australian company could enter into a forward
contract to sell the parts for CNY3,000,000 in ninety days at the
prevailing exchange rate, shielding
both firms from the forex risk.
If the deal
is uncertain, the Australian company might prefer to use
options. Using options rather than a forward will protect the Australian
company's profits (presuming the money is received), yield a
nice profit if the predicted money isn't
received but the forex rates move in its
favour, and cost at most an option premium (unlike forwards,
which can have unlimited losses).
Remember that CFDs and forex are geared products and may result in losses that surpass your initial deposit. CFD trading might not be suitable for everyone, so please make sure that you understand completely the risks involved.
Sunday, July 10, 2011
Is it better to have Pegged or Floating Forex Rates?
Open economies in a worldwide market are faced with three
aims:
1.
Stabilizing the forex rate
2.
Enjoying international
capital mobility
3.
Using a monetary policy tailored
for domestic goals
Unfortunately, attractive as these
goals are, they're paradoxical.
Pegged forex rates
stabilize the forex rate while engaging
in domestically-oriented monetary policy. But, pegged rates don't coincide with enjoying world capital
mobility, which is where floating foreign exchange rates come
in.
Pegged forex rates
A pegged
foreign exchange rate is when a currency's
price is pegged to the value of another currency, group of
currencies, or another asset, like gold. Fixed exchange rates were used globally from 1944
to 1973, but now fixed exchange rates
are mainly employed by small
countries with economies that are essentially
dependent on foreign partners.
Fixed
exchange rates are
infrequently evaluated for political
and business reasons, either being revaluated or
devaluated. A devaluation in a fixed exchange rate lowers
the value of the fixed currency, making exports more
attractive to foreign investors as they become cheaper when their value is converted into the investors'
currencies. This also discourages imports as imported goods
get more expensive due to the foreign exchange rate, the final
target being to increase trade surpluses while decreasing trade
deficits.
A revaluation raises
the value of the fixed currency, causing the opposite scenario to
happen.
Floating foreign-exchange rates
Floating forex rates are when a currency's price
changes dependent on factors in the currency market , such as the currency's
economy, financier sentiment, politics, inflation and interest
rate derivatives.
This is the most
common regime for major economies with two
alternatives: free floating currencies and managed
floating currencies.
The value of free
floating currencies is solely decided by currency market forces and can change
greatly, providing opportunities for traders to
profit on rising and falling currency values.
Managed floating
currencies are able to float to a certain amount, and will be reined in by the central bank if
it travels too far away from ideal levels.
That being said, each floating exchange rate is managed, at least a bit. If a currency goes too far off course, that country's
central bank will reply by changing IRs or by
buying and selling big
amounts of currency to bring its currency back to
acceptable levels.
Fixed versus. Floating foreign
exchange rates
Fixed
exchange rates benefit from reduced risks in
global trade and investment as
global buyers and sellers can
agree to a fee that won't be exposed
to foreign exchange rate changes. Fixed
exchange rates can introduce stricter
business management, keeping inflation in order, and they can also reduce speculation, which can often be destabilising to less-established economies.
However, the
disadvantages of fixed exchange rates are that there is no automated
balance of payments between countries without government
interference ; big holdings of foreign exchange reserves are
critical to maintain the fixed rate ; the
necessity to maintain the exchange rate can dominate
financial policy, that may be better
concentrated on other things ; and
fixed exchange rates can be unstable,
leading to different rates of inflation causing imbalances
of the levels of competitiveness between
different countries.
Countries with
floating exchange rates benefit from
allowing the market to quickly respond to
commercial events, as opposed
to waiting for the central bank's reaction. As the currency market is open 24-hours a day, free floating currencies can
react extremely fast to important
news. This also ends in automated
correction in balance of payments adjustments as the currency rates
adapt to balance demand and supply.
As this
can be looked after
automatically, governments should have more time to
commit policy to other matters.
As floating rates
change automatically, they do not suffer
from international relations crises that can plague
countries with fixed foreign exchange
rates when pressure mounts on a currency to devalue or revalue.
And
countries with floating exchange rates can
have lower foreign exchange reserves.
However,
floating exchange rates result in
instability and doubt when it comes down to global trade, as fluctuations
can lead to changing costs for imports
and exports. This doubt can also lead directly to a
dearth of foreign investment. Having mentioned that, this risk can be hedged by trading with forward transactions.
Floating foreign exchange rates may lead to
unruly economic management as inflation isn't
punished, and governments may follow inflationary economic policies.
Nonetheless
the drawback of this is that severe shocks
may cause a currency to plunge, magnifying the economic
damage. And, as speculation is higher in floating exchange rate systems,
there's more uncertainty for forex traderes and investors. A floating exchange rate may also cause inflation by permitting import prices
to rise as the exchange rate falls.
Improve your forex knowledge and learn to place a fx trade online. Remember that CFDs and forex are geared products and may lead to losses that surpass your initial deposit. CFD trading might not be suitable for everyone, so please make sure that you understand completely the risks.
aims:
1.
Stabilizing the forex rate
2.
Enjoying international
capital mobility
3.
Using a monetary policy tailored
for domestic goals
Unfortunately, attractive as these
goals are, they're paradoxical.
Pegged forex rates
stabilize the forex rate while engaging
in domestically-oriented monetary policy. But, pegged rates don't coincide with enjoying world capital
mobility, which is where floating foreign exchange rates come
in.
Pegged forex rates
A pegged
foreign exchange rate is when a currency's
price is pegged to the value of another currency, group of
currencies, or another asset, like gold. Fixed exchange rates were used globally from 1944
to 1973, but now fixed exchange rates
are mainly employed by small
countries with economies that are essentially
dependent on foreign partners.
Fixed
exchange rates are
infrequently evaluated for political
and business reasons, either being revaluated or
devaluated. A devaluation in a fixed exchange rate lowers
the value of the fixed currency, making exports more
attractive to foreign investors as they become cheaper when their value is converted into the investors'
currencies. This also discourages imports as imported goods
get more expensive due to the foreign exchange rate, the final
target being to increase trade surpluses while decreasing trade
deficits.
A revaluation raises
the value of the fixed currency, causing the opposite scenario to
happen.
Floating foreign-exchange rates
Floating forex rates are when a currency's price
changes dependent on factors in the currency market , such as the currency's
economy, financier sentiment, politics, inflation and interest
rate derivatives.
This is the most
common regime for major economies with two
alternatives: free floating currencies and managed
floating currencies.
The value of free
floating currencies is solely decided by currency market forces and can change
greatly, providing opportunities for traders to
profit on rising and falling currency values.
Managed floating
currencies are able to float to a certain amount, and will be reined in by the central bank if
it travels too far away from ideal levels.
That being said, each floating exchange rate is managed, at least a bit. If a currency goes too far off course, that country's
central bank will reply by changing IRs or by
buying and selling big
amounts of currency to bring its currency back to
acceptable levels.
Fixed versus. Floating foreign
exchange rates
Fixed
exchange rates benefit from reduced risks in
global trade and investment as
global buyers and sellers can
agree to a fee that won't be exposed
to foreign exchange rate changes. Fixed
exchange rates can introduce stricter
business management, keeping inflation in order, and they can also reduce speculation, which can often be destabilising to less-established economies.
However, the
disadvantages of fixed exchange rates are that there is no automated
balance of payments between countries without government
interference ; big holdings of foreign exchange reserves are
critical to maintain the fixed rate ; the
necessity to maintain the exchange rate can dominate
financial policy, that may be better
concentrated on other things ; and
fixed exchange rates can be unstable,
leading to different rates of inflation causing imbalances
of the levels of competitiveness between
different countries.
Countries with
floating exchange rates benefit from
allowing the market to quickly respond to
commercial events, as opposed
to waiting for the central bank's reaction. As the currency market is open 24-hours a day, free floating currencies can
react extremely fast to important
news. This also ends in automated
correction in balance of payments adjustments as the currency rates
adapt to balance demand and supply.
As this
can be looked after
automatically, governments should have more time to
commit policy to other matters.
As floating rates
change automatically, they do not suffer
from international relations crises that can plague
countries with fixed foreign exchange
rates when pressure mounts on a currency to devalue or revalue.
And
countries with floating exchange rates can
have lower foreign exchange reserves.
However,
floating exchange rates result in
instability and doubt when it comes down to global trade, as fluctuations
can lead to changing costs for imports
and exports. This doubt can also lead directly to a
dearth of foreign investment. Having mentioned that, this risk can be hedged by trading with forward transactions.
Floating foreign exchange rates may lead to
unruly economic management as inflation isn't
punished, and governments may follow inflationary economic policies.
Nonetheless
the drawback of this is that severe shocks
may cause a currency to plunge, magnifying the economic
damage. And, as speculation is higher in floating exchange rate systems,
there's more uncertainty for forex traderes and investors. A floating exchange rate may also cause inflation by permitting import prices
to rise as the exchange rate falls.
Improve your forex knowledge and learn to place a fx trade online. Remember that CFDs and forex are geared products and may lead to losses that surpass your initial deposit. CFD trading might not be suitable for everyone, so please make sure that you understand completely the risks.
Sunday, July 3, 2011
Improve your understanding of safe havens in the fx market
Explaining
a safe haven currency
A safe haven currency
is a currency that is considered to be safe during
geo-political and economic turmoil.
Consequently, when events like natural disasters,
war and stock exchange crashes occur, forex
traders invest in safe havens, causing the value of the safe haven currency to
rise and the value of currencies paired with it to fall, even though
the events may not have had an obvious impact
on the aforementioned currency.
What are the features of a safe haven currency?
Due
to the popularity of the carry trade, interest rate differentials
have often been connected with
safe-haven status. Nonetheless this trend isn't consistent across
the market, as it only looks to be an element when
trading the currencies of advanced states in opposition to emerging states.
This suggests that the liquidity of the currency being
traded is a driver of safe-haven status, as major currency pairs
have larger liquidity than exotic currency pairs.
Also, when
worldwide risk aversion is high, liquidity in some markets may
dry up, causing traders to take a position in very
liquid currencies. In turn, this gives the most liquid currencies an extra boost.
For a country to be
thought to be safe and low risk, it should be
isolated from worldwide events in case there's a crisis, and it should have good
fundamentals, like industrial management and
strong industry. In theory, the currencies of
such states might be seen as safe
haven currencies.
In practice, it is
more difficult to gain isolation in
an increasingly globalised world. So factors like the size of a
country's stock market, which indicates its
finance development and market size, now appear to outweigh the external
vulnerability associated with its net foreign
asset position.
What are the main
safe haven currencies?
The USD,
CHF and JPY are all called safe haven currencies. However, because
of the carry trade the fact that the Japanese Yen rises
during periods of global
chaos is likelier to be a reversal of
investors' carry trades ( which generally go long on a
currency with a high interest rate against currencies with low interest rates,
like the yen ) instead of a conscious
investment in the currency.
The CHF
is believed to be a safe-haven currency for a number
of reasons: first, the CHF is a particularly liquid currency and is paired with the USD.
Next, Switzerland has a highly competitive business
environment, along with low company tax, a
clear economy and a history of good
business management. Following,
Switzerland is historically neutral, so it is viewed as less
likely to be affected by political turmoil in
Europe than the euro. Fourth, the Swiss National Bank keeps a large
part of its reserves in gold, causing the
CHF to appreciate with the cost of gold.
Although the
CHF briefly dropped in value in the
global finance crisis due to its exposure
to the banking sector, it has since
regained its footing as a safe haven currency, and has
attracted investors as {several members of the eurozone|Greece,
Portugal, Italy and Ireland|several eurozone members|several
eurozone members (such as Greece, Italy, Ireland and Portugal |several members of the eurozone (such as
Greece, Italy, Ireland and Portugal struggle.
Why is the USD a safe haven
currency?
If we have a
look at the factors that contribute to a currency being a
safe haven, the US and the dollar don't measure up. The US is
not insulated from world events,
having major trading partners across North and Central America, Asia and
Europe. The US has not entirely recovered from the
finance crisis, with unemployment still around 10% and expansion having slowed again for the 3 quarters
to June 2011.
So why are
not currencies like the CAD and AUD (both of which are from nations that
didn't suffer from a banking crisis or a recession, and both of
which have robust economies and lower unemployment rates than the US)
thought to be safe haven currencies?
The Aussie
dollar, Canadian dollar and New Zealand dollar are all commodity
currencies, meaning that, as commodity exports contribute significantly to their GDP, they usually benefit
from strong commodity prices. Strong commodity prices are
inspired by a strong international economy,
meaning that when the world economy might be in peril, these currencies fall in value as investors turn to
safe havens.
So why is the US dollar considered to be a safe haven?
The most significant reasons for this are the size of the
US economy, including the
widespread utilisation of the US
dollar worldwide, the belief in the US dollar
as a safe-haven currency, and the liquidity of the US dollar.
The majority of fx trades involve the US dollar: the major currency pairs are all
paired with the US dollar, and formulas to work out
exchange rates between crosses ( currency pairs that don't contain the US
dollar ) use the US dollar exchange rate. As liquidity is how short-term currency traders make their profits, there are
continually numerous trades being made on the US dollar. In a risk
averse environment, we have already acknowledged that liquidity in some
markets dries up. This leads to more traders to invest in the most
liquid currencies, of which the USD is at the top
of the heap.
As the USD has been said to be the world's top safe-haven
currency for years, there is a prevailing sentiment in the market
that the USD is safe, no matter what the present commercial
data might show. This is among the reasons
explaining why the USD strengthened in 2008
in spite of the financial
emergency: it was still seen to be more safe than
other markets.
The main
reason that the USD is considered to be a
safe haven currency is that the USD is "too big to fail".
Currently there are far more US dollars in circulation internationally than any other currency, with two thirds of
the remainder of the world's foreign reserves denominated in US
dollars. If the USD falls by too much, it will have
implications across world markets.
The dominance of the USD, and the dominance of the US in world
trade, means that other central banks won't permit the dollar to fail.
Improve your knowledge of the currency markets and how to place a fx trade with education tools and free webinars.Remember: CFDs and forex are geared products and may result in losses that surpass your initial deposit. CFD trading might not be suitable for everyone, so please make sure that you understand completely the risks.
a safe haven currency
A safe haven currency
is a currency that is considered to be safe during
geo-political and economic turmoil.
Consequently, when events like natural disasters,
war and stock exchange crashes occur, forex
traders invest in safe havens, causing the value of the safe haven currency to
rise and the value of currencies paired with it to fall, even though
the events may not have had an obvious impact
on the aforementioned currency.
What are the features of a safe haven currency?
Due
to the popularity of the carry trade, interest rate differentials
have often been connected with
safe-haven status. Nonetheless this trend isn't consistent across
the market, as it only looks to be an element when
trading the currencies of advanced states in opposition to emerging states.
This suggests that the liquidity of the currency being
traded is a driver of safe-haven status, as major currency pairs
have larger liquidity than exotic currency pairs.
Also, when
worldwide risk aversion is high, liquidity in some markets may
dry up, causing traders to take a position in very
liquid currencies. In turn, this gives the most liquid currencies an extra boost.
For a country to be
thought to be safe and low risk, it should be
isolated from worldwide events in case there's a crisis, and it should have good
fundamentals, like industrial management and
strong industry. In theory, the currencies of
such states might be seen as safe
haven currencies.
In practice, it is
more difficult to gain isolation in
an increasingly globalised world. So factors like the size of a
country's stock market, which indicates its
finance development and market size, now appear to outweigh the external
vulnerability associated with its net foreign
asset position.
What are the main
safe haven currencies?
The USD,
CHF and JPY are all called safe haven currencies. However, because
of the carry trade the fact that the Japanese Yen rises
during periods of global
chaos is likelier to be a reversal of
investors' carry trades ( which generally go long on a
currency with a high interest rate against currencies with low interest rates,
like the yen ) instead of a conscious
investment in the currency.
The CHF
is believed to be a safe-haven currency for a number
of reasons: first, the CHF is a particularly liquid currency and is paired with the USD.
Next, Switzerland has a highly competitive business
environment, along with low company tax, a
clear economy and a history of good
business management. Following,
Switzerland is historically neutral, so it is viewed as less
likely to be affected by political turmoil in
Europe than the euro. Fourth, the Swiss National Bank keeps a large
part of its reserves in gold, causing the
CHF to appreciate with the cost of gold.
Although the
CHF briefly dropped in value in the
global finance crisis due to its exposure
to the banking sector, it has since
regained its footing as a safe haven currency, and has
attracted investors as {several members of the eurozone|Greece,
Portugal, Italy and Ireland|several eurozone members|several
eurozone members (such as Greece, Italy, Ireland and Portugal |several members of the eurozone (such as
Greece, Italy, Ireland and Portugal struggle.
Why is the USD a safe haven
currency?
If we have a
look at the factors that contribute to a currency being a
safe haven, the US and the dollar don't measure up. The US is
not insulated from world events,
having major trading partners across North and Central America, Asia and
Europe. The US has not entirely recovered from the
finance crisis, with unemployment still around 10% and expansion having slowed again for the 3 quarters
to June 2011.
So why are
not currencies like the CAD and AUD (both of which are from nations that
didn't suffer from a banking crisis or a recession, and both of
which have robust economies and lower unemployment rates than the US)
thought to be safe haven currencies?
The Aussie
dollar, Canadian dollar and New Zealand dollar are all commodity
currencies, meaning that, as commodity exports contribute significantly to their GDP, they usually benefit
from strong commodity prices. Strong commodity prices are
inspired by a strong international economy,
meaning that when the world economy might be in peril, these currencies fall in value as investors turn to
safe havens.
So why is the US dollar considered to be a safe haven?
The most significant reasons for this are the size of the
US economy, including the
widespread utilisation of the US
dollar worldwide, the belief in the US dollar
as a safe-haven currency, and the liquidity of the US dollar.
The majority of fx trades involve the US dollar: the major currency pairs are all
paired with the US dollar, and formulas to work out
exchange rates between crosses ( currency pairs that don't contain the US
dollar ) use the US dollar exchange rate. As liquidity is how short-term currency traders make their profits, there are
continually numerous trades being made on the US dollar. In a risk
averse environment, we have already acknowledged that liquidity in some
markets dries up. This leads to more traders to invest in the most
liquid currencies, of which the USD is at the top
of the heap.
As the USD has been said to be the world's top safe-haven
currency for years, there is a prevailing sentiment in the market
that the USD is safe, no matter what the present commercial
data might show. This is among the reasons
explaining why the USD strengthened in 2008
in spite of the financial
emergency: it was still seen to be more safe than
other markets.
The main
reason that the USD is considered to be a
safe haven currency is that the USD is "too big to fail".
Currently there are far more US dollars in circulation internationally than any other currency, with two thirds of
the remainder of the world's foreign reserves denominated in US
dollars. If the USD falls by too much, it will have
implications across world markets.
The dominance of the USD, and the dominance of the US in world
trade, means that other central banks won't permit the dollar to fail.
Improve your knowledge of the currency markets and how to place a fx trade with education tools and free webinars.Remember: CFDs and forex are geared products and may result in losses that surpass your initial deposit. CFD trading might not be suitable for everyone, so please make sure that you understand completely the risks.
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