Thursday, September 23

Understand the currency, both as a trader and investor

It was only up to starting to exchange full-time currencies that I fully appreciated how much the movements of these markets can affect our daily lives. The most obvious is, of course, whenever we travel abroad and we have to buy foreign currencies. Regular travelers will probably be more aware of the fluctuations in the currency markets and the overvoltage of visitors in the United States around Christmas (as a result of a low dollar) showing how sophisticated we became. The exchange rate was close to $ 2 to the book that was strongly unlike Christmas 2005 when you were lucky to get $ 1.7 for each book. It may not have a lot of noise when the exchange of a few hundred books, but the difference is extraordinary if you hope to buy goods or any other dollar assets (including US equities). For example, a $ 200,000 house in December 2005 would have cost 117,667, while the same year later would have cost £ 101,010, a difference of 16,000 pounds. The same principle applies with any other currency, whether in Europe or internationally.

When buying an asset abroad, there are of course specialized foreign currency brokers with whom it is possible to buy or sell a currency, eliminating the uncertainty and fluctuation of the value assets, locking favorably. In essence, a rate is agreed and then fixed for any period, sometimes up to 2 years and that the rate is normally confirmed by a deposit of 10%. The balance is generally required only on the date of delivery of the contract. Remember that this is a contract and there are difficult penalties for those who do not provide money on the required date. In this way, exposure to market volatility can be removed and it is a technique commonly used by these purchasing goods, boats and other major assets in foreign currencies. In addition to these futures contracts, it is also possible to cover market fluctuations using foreign exchange options. Maybe you already have an asset in a foreign currency that you are trying to sell, but it takes time. You consider that currency movements can be unfavorable for you in the coming months, you will protect yourself (or subscribe) using a currency option.

Access to the foreign exchange market by ordinary investors and consumers has been possible, in part, to its deregulation, but mainly because of changes in dramatic technology. When I started to negotiate on term contracts 15 years ago, I had a diet on the screen and satellite, but I had to sound a broker for a price. At the time he spoke to the broker on the floor of the exchange, the negotiation opportunity was generally part. Today, everything that is required is a laptop and a broadband connection. The data arrive in real time and trading is done in a mouse click. The disadvantage of such a speed is that it is possible to make mistakes, as I did when closing the wrong contract!

The currency is an excellent market to trade as it is available 24 hours a day, wherever you are in the world, only close Friday night on Sunday evening. Even if you have no intention of negotiating, if you have an asset abroad or think or buy one, you should at least have an idea of ​​which part a particular currency is the trend from a graph of the currency pair. These graphics are widely available on the Internet and, with a little time and effort, it should appear in the way the market is likely to move. The currency markets are one of the most firm trends in any financial market. Once the management is established, the movement tends to last a little time and will only change instructions on some news of news or a fundamental change in global economies.