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Archive for April, 2011

Forex Volatility Profits

Posted by TFNG Admin On April - 21 - 2011

With increased Forex volatility profits can rise for traders who are tuned in to the foreign currency market. The world is a chaotic place today with political unrest across North Africa and the Middle East, outright civil war and NATO intervention in Libya, and the devastating earthquake and tsunami that recently hit Japan. At such times Forex volatility profits the prepared. Volatility comes from uncertainty. Successful trading comes from a firm knowledge of the fundamentals of the currencies that one trades and a clear view of market direction so far as technical analysis will supply it. How to trade Forex at times like this is often to buy call or put options in Forex pairs. However, whether one is trading Forex directly or through options Forex volatility profits those who do their homework, develop their trading skills, use a well thought out trading plan, and stay in touch with the market.

How to enter profitable trades in Forex is the same at all stages of volatility. Forex volatility profits come because there are typically more trading opportunities in the inefficient markets that arise when war, economic chaos, and natural disasters stalk the world. Today in North Africa and the Middle East whole societies have taken their cue from the peaceful demonstrations that forced Egyptian president and strongman Hosni Mubarak from office. Syria has just rescinded a generations-long state of marshal law and closed down a secret court. In Yemen demonstrations continue and there is unrest in the oil rich state of Saudi Arabia. Not only does the price of oil flinch at the prospect of increasing civil unrest in this oil rich region but the value of the Euro, Pound Sterling, and Swiss franc can be affected by the prospect of a disruption of oil supplies and more civil war on Europe’s flank. Forex volatility profits may be very possible as events unfold.

How to build a trading plan for Forex during times of high market volatility is to start long before the market becomes volatile. Successfully trading in high volume and volatility requires knowledge of both fundamentals and technical market factors. It requires that the trader develop the necessary skill set to execute trades in a timely manner, preserve investment capital, and find the most profitable currency pairs to trade. For example, trading the Australian dollar versus the Yen, Canadian dollar, or US dollar will make less sense when there is trouble on the doorstep of Europe than trading the pound, Swiss franc, or Euro versus one of the dollars or the Yen. Forex volatility profits will most typically come from situations where one currency is stable or profits from a situation while another is damaged. One can scan the various trading pairs for price movement or use a Forex service for alerts in finding the pairs with the most price movement. It will be up to the trader how to do this. Time spent finding the right pair can pay for itself in increased profits. Time saved by subscribing to an alert service may be even more profitable.

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    Forex Risk Aversion

    Posted by TFNG Admin On April - 14 - 2011

    Forex risk aversion helped the Swiss franc and Yen rise recently. What is Forex risk aversion? Risk aversion is when traders buy Yen, Swiss francs, or the dollar as a safe haven currency. Traders and investors see other currencies as risky and choose to move assets into currencies of countries that are economically stable. Traders seek currencies that are likely to rise in relation to others, not because of their own strength so much as because of the weakness of other currencies. At the current time the Swiss franc and the Yen are seen as safe haven currencies for those with Forex risk aversion. The US dollar is currently seen as less of a safe haven due to mounting debt problems of the USA. A congressional showdown that temporarily left repayment of US debts in doubt did little to help matters. Although Chinese support of Spanish debt has helped the Euro recently it fell off of the safe haven list some time ago.

    There are both long term and short term Forex risk aversion strategies. A long term strategy is to stay away from falling currencies such as the dollar and Euro. A commonly more profitable Forex risk aversion strategy is to move into safe haven currencies in times of stress and out just before ailing currencies recover. The US dollar, fore example, has been declared down and out several times over the years. Those who have doubted the demise of the greenback have often profited by buying dollars as they bottom out. Another profitable way to play a Forex risk aversion strategy is to move into a strong currency like the Swiss franc when a crisis looms. Then the trader can buy calls on dollars, Euros or his currency of choice. When the faltering currency recovers, the trader profits. How to build a trading plan for Forex today can be to simply buy Yen or francs and hold them. A more profitable strategy will be to acknowledge that currencies can vary substantially in value and that anticipation of price movement is where the profit is.

    Although Forex risk aversion can drive investors to buy Yen, the recent earthquake and tsunami in Japan occasioned another move. The rush by Japanese to return assets home to deal with the cost of the natural disaster caused a spike in the Yen. Once the necessary funds have been transferred and Yen repatriation has run its course the buying pressure on the Yen will subside. At that time traders will be wise to be watchful of a resultant fall in the Yen. Eventually, when things stabilize in Japan assets will move offshore again causing downward pressure on the Yen. Whenever traders seek a safe haven currency they must assess both the historic state of various currencies but the state today of the Yen, dollar, Euro, pound, or Swiss franc. Although the dollar has traditionally been considered a safe haven currency, its slow and steady fall reduces its attractiveness for holding long term. However, trading the dollar at times of Forex risk aversion can be profitable.


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      War and Currency Trading

      Posted by TFNG Admin On April - 5 - 2011

      The standard wisdom on war and currency trading is that wars drive investors to put their money in currencies such as the dollar as a safe haven currency. Investors and traders respond to the uncertainty and economic disruption caused by armed conflict. Besides buying the US dollar, investors commonly buy Swiss francs, Yen, Euros, British Pounds, or gold bullion. When it is possible that a currency will devalue greatly, or disappear in the case of conquered country, any reasonably stable currency is a good bet. However, wars resolve themselves, for good or for ill. There are winners and there are losers. Depending upon who gains control of natural resources or markets economies may prosper as a result of war. When an economy prospers its currency commonly rises as well. This is, sadly, why many nations go to war.

      Using the civil war in Libya as an example we can speculate about how that war and currency trading relate to each other. The facts of the day are always discounted by the market so it is possibility and speculation that drive prices. Those who might expect to be most closely affected by events in Libya are the European Union, Switzerland, and Great Britain. This is because Libya is a nearby supplier of oil. An unstable Libya is an unreliable source of oil. A rebel dominated Libya beholding to NATO forces and Arab supporters then becomes a goal for the oil consuming nations to the North of Libya. In that regard it is of note that rebel forces in the East of Libya have started selling oil through a Swiss trading company. The sale of a million barrels of crude oil promises to help the rebel cause in Libya and allow Libya, or part of it, to remain a stable supplier to oil to Europe. This becomes good news for the Swiss franc, Euro, and British Pound. Recently we wondered about Egypt and the Euro. Egypt came through its political crisis without violence. When demonstrators asked for more rights in Libya, the government responded with lethal force plunging the nation in civil conflict. War and currency trading issues are still a concern in Yemen, Syria, and Saudi Arabia as demonstrators demand right from rigid governments. The attentive currency trader will watch these situations and trade accordingly.

      The Forex trader who accurately anticipates arms conflicts can profit by directly trading currencies that will suffer in consequence and in trading options on currencies with the likely end result is not so clear or certain. How to trade currency profitably is by anticipating war and currency trading in a timely manner. Many international companies trade these same situations in order to hedge currency risk. Speculators simply anticipate the sales and purchases of the major players in order to profit from war and currency trading. The first half of profiting from safe haven trading is when a crisis emerges. The second half is anticipating price movements of currencies as crises resolve. For example, as the Libyan situation stabilizes one might expect the Euro, Swiss franc, and British Pound to rise a little. To the extent that this happens and to the extent that a trader can anticipate it, he can  profitably trade situations of war and chaos and their effects on currency markets.

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        Disclaimer - Forex, futures, stock, and options trading is not appropriate for everyone. There is a substantial risk of loss associated with trading these markets. Losses can and will occur. No system or methodology has ever been developed that can guarantee profits or ensure freedom from losses. No representation or implication is being made that using this methodology or system or the information in this site will generate profits or ensure freedom from losses.

        HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN OR MENTIONED.

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