The Forex Nitty Gritty

Interesting news about the Dubai financial crisis. One day they are the successful business center of the Middle East and the next they are asking for a six month moratorium on their debt. For those whose business is Forex trading the questions about the Dubai financial crisis are how much money is owed and to whom? The investment arm of Dubai, Dubai World, is asking not to pay interest on $59 billion for six months. Dubai, unlike its neighbors, is not a large oil producer. It acts as a financial center with interests in tourism and trading. Thus Dubai does not have pool of oil to sell to pay its debt. So, how do you trade the Dubai financial crisis? What is your Forex strategy for the Dubai financial crisis and potential for world wide market meltdown?

Dubai is one of the seven United Arab Emirates. Dubai World is the country’s investment arm. Things have been slowing down in Dubai for a year with expatriate Indian workers returning to India as jobs are lost. The financial world was shocked, however, when Dubai world asked for a 6 month moratorium on its $59 Billion debt the other day.

Regarding Forex trading, what will the Dubai financial crisis mean? There are all sorts of opinions about market melt downs because of the amount of debt that countries have taken on to fight the recession. In Forex trading the yen fell after the Dubai news. One can assume that the concern is that Japan, as an exporting country, will suffer as countries such as Dubai run out of money to borrow and quit buying cars and electronics.

World banking centers such as London have issued statements regarding the Dubai economic crisis. If banks in Great Britain suffer because of loan defaults in Dubai will Forex trading in the British Pound be affected?

As in most times of world financial crisis there are signs again of a “flight to the dollar.” Will the dollar benefit in Forex trading because of the Dubai financial crisis? Despite all of the problems with the US economy, US financial institutions, US treasuries, are still seen as safe havens in times of trouble. A sound Forex strategy in the days ahead will need to look at who the winners will be and who the losers will be if there are more debt moratoriums like those in Dubai. A sound Forex strategy needs to look at the next days and weeks, but also, the next years.

The other question is how long with the Dubai financial crisis affect Forex trading? Will the Dubai financial crisis cause the world financial markets to slowly but surely unwind or will stability be maintained? Whatever the eventual outcome of the Dubai financial crisis we can be assured that Forex trading will reflect the concerns of the hour and the eventual outcome.

Forex strategy and successful Forex trading has to do with keeping up with the events of the times and understanding how billion dollar ripples in the Dubai financial crisis will affect the multi trillion dollar Forex market.

In developing a sound Forex strategy for successful Forex trading beware whose opinion you listen to. You want your Forex strategy to be based on objective data. The closer someone’s opinion is to the data the more likely it will be useful to you in your Forex trading. Depending upon whose opinion you listen to the opinion may be tightly reasoned and based upon hard facts. Depending upon whose opinion you listen to the opinion may be another rehash of a tired argument.

Abraham Lincoln was criticized a lot during his political career and during his years in the presidency. Published opinions were very politically motivated. Today, depending upon whose opinion you listen to Lincoln was the first or second best or most revered US president depending upon where you rank George Washington.

What brings the matter of whose opinion you listen to mind is a spate of published opinions critical of the Obama administration and the handling of the economic crisis. In Forex trading we are only interested in politics if it promises to change monetary or economic policy. We base our Forex strategy on the things that we believe will affect the value of the dollar and other major world currencies.

A number of the criticisms alluded to above are rehashes of last year’s arguments. Everyone is entitled to their opinion but second guessing does not help us in Forex trading.

What we want in developing Forex strategy for successful Forex trading is the ability to predict the future, not deconstruct the past. On the one hand deconstruction of the causes of the Great Depression as done by the current Federal Reserve Chairman, Ben Bernanke, was helpful in averting another Great Depression last year. However, Mr. Bernanke’s work was based upon hard fact and the opinions in his work are very supportable.

Depending upon whose opinion you listen to there may be hard facts to support it or there may be a political agenda. Political agendas are often disguised. That is the nature of politics. But, don’t let your politics and your Forex strategy get confused. Wanting another party in power and seeing the future in Forex trading are different animals and should be kept in different cages.

Political arguments and the kind of destructive group psychology that interferes with successful Forex trading are similar in their deleterious effects on developing and implementing a successful Forex strategy. Look for numbers when you read opinions about politics, monetary policy, and economic policy. Look for hard data and read carefully to understand the argument that connects the facts and the opinion. Depending upon whose opinion you read the connection between facts and opinion may be strong and clear or very tenuous. If the latter is the case, run away, don’t walk. Successful Forex trading is based upon a sound Forex strategy and that is based upon sound opinion supported by fact.

Do your homework. Take notes. Read a lot. Depending upon whose opinion you listen to beware as it can make or break your Forex trading.

A large number of issues drive the Forex market. Forex strategy and Forex trading is usually focused on the here and now. Forex trading software is geared to take advantage of technical shifts in global currency patterns. However, every so often there is a monster issue in a major country which has the potential to drive value of the nation’s currency up down significantly. Forex and health care in the USA may be one of these. An adequate health insurance system will be very costly and will have the potential to drive to dollar to new lows.

The problem with providing health care payment to everyone is the immense cost. Eighty percent of health care cost occurs in the last year of life and half occurs in the last month. These are United States figures and have to so with the availability of extraordinary means of prolonging and saving lives. Unlike the public health care system in England where someone over sixty with a heart attack is treated at home the USA puts everyone in a cardiac unit at substantially higher cost.

Forex trading will not be immediately affected if the USA passes a heath care bill out of both houses of congress but one’s long term Forex strategy should take such a monster money sink into consideration. Certainly, when money is paid to US doctors and hospitals it does not leave the country. However, up to 40 percent of health care cost is insurance company overhead and paperwork done by providers. This money goes out of the health care system and can easily leave the country in the form of dividends for foreign shareholders of United Health Care, for example.

Forex and health care are therefore related in the USA. Forex trading will be affected and one’s Forex strategy will need to take this huge cost into account.

The flip side is that US industry could end up being more competitive if the burden of paying health insurance for their employees is lifted. It was said that GM had to add $1,700 to the cost of each car to cover health care and retirement expenses. If US industry can save money because its employees are covered by a government insurance plan then the US could become more competitive across the board. Then Forex trading of the major currency pairs would reflect this in an increased value of the dollar.

A successful Forex strategy for this situation would affect day by day Forex trading in that announcements of the Federal Reserve and changes in monetary policy happen and affect Forex trading immediately. Thus a slide or ascent of the dollar will never be gradual. Forex trading will always see a discontinuous, saw tooth graph, set of changes and that is were Forex trading finds it profits.

It could well be that the mix of expense of a national health care system and a revitalized US industry could make Forex trading very interesting and, for those with a smart Forex strategy, very profitable. Keep in touch with health care and Forex in the USA.

Currency risk is a form of risk that arises from the change in price of one currency against another. Whenever investors or companies have assets or business operations across national borders, they face currency risk if their positions are not hedged. The basic need for a Forex market comes from the need to do business across national boundaries. In Forex trading it is useful to understand who is hedging their foreign currency risk and over what time span. More business across national borders requires more hedging of foreign currency risk and increases activity in the Forex market. Forex trading of currency pairs of countries who do a lot of business together will allow you to trade with high volume making your trading software more accurate.

A translation risk is the risk that the Forex market rates will change between writing a contract and final payment. A Chinese ship building company writes a contract for payment in dollars for building a ship. Then the company buys what it needs to build the ship and it pays its workers in Yuan. The value of the Yuan goes up and the dollar goes down. The company ends up losing money on the sale. An American high tech company agrees to pay a Swiss company in Swiss francs for each dosage for use of its patent on a genetically engineered cancer therapy. The franc goes up and dollar goes down. The American company’s payment in dollars by the HMO’s and Medicare is frozen and the company cannot afford to make and sell the drug in question.

The way out of this is to hedge which is to buy and sell currency futures, to deal entirely in the foreign currency, if possible, or to take out a loan in that currency on the day the contract is written and immediately convert to the home currency.

None of the above is what Forex trading on a daily basis is about. On the other hand it is exactly what Forex trading is about. The expectations of very smart people whose job it is to hedge risk for their companies is a large part of what drives currency markets. Having a sense of where the consensus is will give you a better shot at making a profit in day trading.

Even if your Forex trading involves moving quickly in and out of Forex market positions it is essential to know what is driving the Forex market. You are watching your computer screen and, off screen six thousand miles away, someone is buying or selling in your Forex market currency pair to protect a huge contract for shipment of beef to Japan from the USA or coal from Australia to China, paid for in Euros. Although the Forex market is huge at roughly $3 trillion USD a day, it is very liquid. The Forex Market can make abrupt turns. This is where having a sense of what is going on off screen will held wait on a trade or get out when the Forex market makes a big move either with or against your position.

Here are some thoughts on Forex advice. In a recent set of internet searches for articles related to Forex trading, Forex strategy, and Forex advice in general we were dismayed. First of all a large number of Forex trading articles purporting to give Forex advice were written in non grammatical, poorly spelled, nonsensical English. Now, maybe the person doing the writing knows their own language really well. But, they are writing, in this case, to an English speaking audience. The reader needs information about how to construct a Forex strategy, engage in Forex trading and is therefore looking for clear, understandable, Forex advice.

The internet is going to start accepting non Latin characters for addresses (URL’s). This will drive internet and business development throughout the world which is a good thing. It will also further fill the Forex advice bucket with unreadable articles. So, for a beginner in Forex who and what do you trust?

Forex trading takes homework. You need to devote time to understanding this new world. Advice on Forex strategy and Forex trading is out there and you just need to look. Bookmark good sites. Make a list of sites and the kinds of advice they offer. Beware of sites that do not offer a disclaimer. Forex trading just like any trading carries a level of risk. Not mentioning that risk is negligent for the writer and dangerous for the reader.

Beware of promotional sites. To imply that only one brand of trade station software will “really” work is dishonest and misleading. A good site for Forex advice will talk about the writer’s experience and how they got themselves out of holes they fell into. Everyone makes mistakes. That is how we learn. If an internet site offering Forex advice implies that Forex trading is easy and does so in a poorly written article, do not walk away, run!

Good Forex advice for beginners typically starts with how you set up to trade. Good Forex advice for beginners talks about time management, how much capital you need and how much you ever dare risk in a trade as a beginner. A good Forex advice article for anyone talks about the psychology of trading; both market psychology which you can use to your advantage and your own personal psychology which you ignore at your own peril.

Good Forex advice talks about Forex strategy and the rhythm of day to day Forex trading. A poorly written article implies that the writer did not know, nor care about presenting accurate and helpful advice. Someone who is promising “guaranteed” and easy returns are trying to con you. Forex trading is not a game. Developing a Forex strategy and following through is work. It can be very lucrative work but it is work.

Good Forex advice will probably sound a little depressing to the beginner. Weeding out those who naively think that Forex trading is easy is probably going to save a lot of folks a lot of money. Those who proceed, forewarned, will make the best Forex traders and will make the most money.