Is it the stock market? The bond market? The retail market on Rodeo Drive in LA?
Answer: The Foreign Currency Exchange Market! It is known as 'Forex' and some $4 trillion is traded each day! This dwarfs any other market in the world.
Welcome to The Golden Sense! Summer is getting hot and I am trying to get some sun. It takes time and dedication...especially when you're cooped up inside 5 days a week. Anyways, I hope that wherever you are reading this the weather is treating you well, as it is for me here in California.
Have you ever received a check from a relative outside the country? Perhaps an uncle from Canada? So you get this check and take it to the bank. The amount on the check reads "one thousand." The teller deposits your check. A couple days later you go online to check your account and you see that the check deposited for one thousand is showing up as $1052! Did the bank make a mistake? You call up Mr. Banker and the poor harassed soul tells you that the check deposited was Canadian and the exchange rate was 1.052. You say "OK" and you hang up the phone and ponder a bit. The next day you go online and look at the Canadian to US dollar 'exchange rate'. To your astonishment the exchange rate is now reading at 1.04. Now...that is different from what Mr. banker told you?
So whats with this exchange rate? Can someone benefit from this? I mean..it's all Greek to me! Here is the definition: A foreign exchange rate is the relative value between two currencies. In particular, the exchange rate is the quantity of one currency required to buy or sell one unit of the other currency.
So the next time you're in London and you see your favorite 6-pack of Budweiser selling for 8 English Pounds, look at the exchange rate! If the exchange rate of US Dollars to English Pounds is at 1.62, then that darn 6-pack of Budweiser is actually selling for close to $13! Yikes. Better settle for a pint of Fullers.
Currency exchange rates change by the minute 24 hours a day 7 days a week. It can be fast and mind boggling. These exchange rates change for a multitude of reasons.
The underlying reason why currency exchange rates change is due to supply and demand. A currency will tend to become more valuable when demand for it is greater than the available supply. It will become less valuable when demand is less than available supply (this does not mean people no longer want money, it just means they prefer holding their wealth in some other form, possibly another currency). Exchange rates will change whenever the value of either of the two given currencies change.
Basically, currencies trade in pairs, with investors buying one currency and selling another at the same time. The U.S. Dollar/Yen and Euro/U.S. dollar are two of the most popular trading pairs; other popular ones include the British pound, Swiss franc and the Canadian and Australian dollars.
Yes, there is a way to benefit from changes in exchange rates.
Want to know what a successful currency trade looks like?
Lets say you get onto an online trading platform and buy 1000 Aussie dollars at the rate of 1.04. This will cost you $1040 US dollars. You wait one week and the exchange rate changes from 1.04 to 1.07! At this point you sell your Aussie dollars by converting it back into US dollars. At the exchange rate of 1.07 you now have $1070 US dollars. You pocket the difference of $30 without having to do any hard work what so ever. Amazing right? Not really. It is rarely this easy.
Most advisors do not recommend currency trading. However, if you want to give it a try, it's easy to do so.
Online platforms such as ForEx Pro allow you to start up an account with only a few hundred dollars. On ForEX Pro they allow you to have a practice account where they give you fake money (simulated account) and trade with it on real time price changes. This allows you to get comfortable and gain experience. Upstart online platforms like Oanda Corp. and Forex Capital Markets' FXCM are capturing much of the retail sector with smaller balance requirements, tighter trading spreads and low fees. A customer can open an account at Oanda with just a $1 balance, for example, while Citi FX Pro requires a minimum balance of $10,000.
Forex's frenetic pace can be brutal to rookies and sophisticates alike. Managing proper trade sizes and rapid price movements—all while using "leverage," or borrowed money, to amp up bets—can be devilishly difficult; one bad trade can blow up an entire account. On the other hand making one decent trade can make you some good money.
Here are some aspects that pro's look for when trading currencies:
1. Supply and Demand of a particular currency.
2. Long term chart trends (technical analysis)
3. Future inflation rates.
4. Interest rate levels and central banking policy of a particular country.
5. A countries political stability.
It comes down to this: Do not try currency trading until you have practiced with a simulated account, you understand global monetary trends, and you have an extra buck to learn about something new. If you just 'jump' into currency trading you will most likely lose money. It is best to follow Warren Buffet's advice. "Rule No.1: Never lose money. Rule No.2: Never forget rule No.1."
The Best to You~
T. Norman
There was great interest in the U.S. Women's National Soccer Team in the recent Women's World Cup. Our girls made it to the final! They battled Japan with some thrilling end-to-end soccer. The US women had countless opportunities, but kept allowing Japan back into the match. The match ended 2-2. Japan were eventually victorious in the penalty shootout. Congrats to Japan for the victory. It was a good lesson for all of the soccer fans in the USA...we must learn that in soccer it's not about creating chances, it's about finishing your chances.
It is reported that Kim Kardashian is suing Old Navy for using a model that looks like her.. (possibly violating publicity rights?) Apparently Old Navy hired an actress that looks like Kim and featured her in a television ad campaign. If you're waiting for a follow up including some kind of long list of Kardashian-related things the actress did in the video, or some kind of hinting that Old Navy themselves did to portray a Kim-like image, there isn't any. She just looks like Kim Kardashian, which apparently is enough to sue over? Crazy! So if you resemble Kim Kardashian you wont be able to get any acting or modeling jobs. Hmm.... I think Kris Jenner might be behind all of this.
What does the future hold for the Kardashians?
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An old man sat outside the walls of a great city. When travelers approached, they would ask the old man, "What kind of people live in this city?" The old man would answer, "What kind of people live in the place where you came from?" If the travelers answered, "Only bad people live in the place where we came from," the old man would reply, "Continue on; you will find only bad people here."
But if the travelers answered, "Good people live in the place where we came from," then the old man would say, "Enter, for here too, you will find only good people."
A Yiddish Folk Tale "Good People"
References:
Bernard, S. (2011) Is Currency Trading Worth the Risk? The Wall Street Journal.
Disclaimer: The content of this article is provided without any warranty, expressed or implied. All opinions expressed in this article are those of the author and may contain errors or omissions.
No material here constitutes "investment advice" nor is it a recommendation to buy or sell any financial instrument, including but not limited to stocks, options, bonds or futures.
