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Archive for June, 2011

Swiss Currency Reserves

Posted by TFNG Admin On June - 21 - 2011

Swiss currency reserves at the Swiss National Bank are becoming a problem. How to trade Forex successfully includes keeping track of the state of each of the major currencies, including the Swiss franc. With this fact in mind we present a bit of information about the Swiss National Bank. The Swiss National Bank has four different names, one for each of the four official languages of Switzerland. These names are Schweizerische Nationalbank in German, Banque Nationale Suisse in French, Banca Nazionale Svizzera in Italian and Banca Naziunala Svizra in the preserved Roman dialect of Romansh. The Swiss National Bank is a corporation with government entities owning 55% of shares and private individuals owning the remaining 45% of publically traded shares. The Swiss National Bank functions as an independent central bank with the right to print and distribute money. It conducts Swiss monetary policy and has been largely responsible for the stability and strength of the Swiss franc. It has accumulated substantial foreign currency reserves. Unfortunately Swiss currency reserves have diminished in value as the Swiss franc has risen of late.

Swiss currency reserves serve the same purpose as the currency reserves of Japan, Taiwan, and mainland China. A country sells its currency in order to prevent its own currency from becoming too expensive. Nations do this so that their exports can remain economically competitive. What happens in the long run is that the nation that buys other currencies as a continual monetary policy subsidizes is competitors for buying the nation’s products. The pitfall in this policy is that the currency that Switzerland, Japan, or one of the Chinas buys can still fall in value. This has happened to the Euro due to the several debt crises on the continent. The Swiss franc has gained 16% versus the Euro over the last month and a half. That translates to a 16% fall in value of Swiss currency reserves held as Euros. With the Swiss franc at record highs against the Euro the Swiss National Bank is holding interest rates near zero. As the Greek debt crisis plagues the Euro there is little relief in sight for Swiss currency reserves.

The issue of holding someone else’s debt is not limited to Swiss currency reserves. Japan, China, Taiwan, and others have held dollars for years. At times this is profitable. With the dollar as a safe haven currency over most of the years since World War II holding greenbacks has not been a great risk. However, as the dollar has slid more than recovered of late anyone buying dollars is doing to drive the dollar up and their currency down. This allows the country doing to so keep their exports more productive. The rationale is that they will profit more in the long run selling discounted goods. As always, good Forex advice is to follow the monetary policies of nations such as Switzerland, Japan, and China for clues as to who will be buying dollars and Euros and who will be selling.

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    Forex Trading Probe

    Posted by TFNG Admin On June - 14 - 2011

    A Forex trade probe of State Street Corp and Bank of New York Mellon by the SEC is going forward according to news sources. The issue is whether or not disclosures and representations by these banks regarding currency trades were accurate. These banks do a large business in the $4 Trillion a day foreign exchange market. The questions in the Forex trading probe have to do with pension fund clients of the banks. This discussion has to do with if how to trade Forex is directly or through the services of a professional trader. Allegations have been made against the banks by pension funds of overcharging and of placing trades at times during the day when profits would predictably be less. The argument in such a matter typically has to do fiduciary responsibility. In general a fiduciary owes his client the obligation to carry out the all responsibilities in complete good faith and honesty with the benefit of the beneficiary as his sole aim. The usual interpretation of the degree of good faith is that the fiduciary has an obligation to act reasonably in avoid negligence in handling the affairs of his client. Specifically the fiduciary is to put the interest of no other party, including his own, ahead of that of his client. These are the issues that the Forex trading probe will be dealing with.

    All too often when reading about Forex trading and economic news one runs across a news item about a Forex scam. These are typically storefront operations in which a so called Forex trader promises his naïve clients extraordinary profits. Although Forex trading can be very profitable any Forex trader knows there is risk involved in foreign currency trading. Often these are pyramid schemes in which the trader is not really making any profits but is using money from new investors to pay the original investors, but only when asked for money. In general these operations only have paper profits and are usually run to ground with an investor asks for his supposedly spectacular profits. In this sort of situation the trader is bogus and the client typically loses all of his investment before a Forex trading probe discovers the truth. This is obviously not the case with the SEC Forex trading probe of State Street Corp and Bank of New York Mellon. These banks trade foreign currencies are certainly not being accused of paper profits. What they are being investigated for is if they carried out currency trading on behalf of their clients at less than the level of fiduciary responsibility that the law requires.

    An investor will commonly use a currency trader as they believe there are handsome profits to be made in Forex trading. These individuals or pension fund managers have no idea how to enter profitable trades in Forex. Thus, much like using a stock manager for a pension fund, they hire a Forex trader in the person of a reputable bank. As many who have used fund managers can attest to there is no guarantee of profits in any investment and that includes trading Forex. It does not require falling prey to a foreign currency scheme to lose money in Forex. Sometimes the market takes care of that all by itself. Nevertheless the SEC Forex trading probe is going forward. Traders and non-trading investors will be well advised to consider the risks as well as the rewards of trading themselves versus having someone trade for them in the Forex markets.

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      Greek Debt Crisis

      Posted by TFNG Admin On June - 7 - 2011

      It is said that German companies are bargain hunting in Greece as the Greek debt crisis continues. A year ago Greece required substantial foreign loans to avoid default on its sovereign debt. The member of the European Community was not the only nation in trouble. The so called PIIGS and Forex issue has rocked the stability of the Euro for more than a year. At the current state of the Greek debt crisis central banks in the EU are being asked, pressured is a better term, to roll over their current short term loans to Greece. It is unlikely that the stronger members of the EU will let their financially strapped brothers go down in flames. However, that has not stopped companies from Germany from looking for bargains among distressed Greek companies.

      In the Greek debt crisis the basic issue for currency traders is not Greek debt but the strength of the Euro. Portugal is also in line for debt relief. In fact, the acronym, PIIGS, refers to Portugal, Italy, Ireland, Greece, and Spain, all of whom have been dealing with debt worries. As the European Community bails outs its weaker members the Euro tends to suffer. At times the Euro has appeared to be in free fall but then it comes to a stop when fundamentals dictate. Now that the UE is seeing a reduction in manufacturing output, similar to what is now seen in Asia and North America, the mid and longer term strength of the Euro is in question. How to trade the Greek debt crisis and its effects on the Euro has typically been learning the timing of how to short the Euro when the debt crisis worsens and to buy Euros in anticipation of a rebound.

      A worrisome factor in the Greek debt crisis and its twin in Portugal is the absence of former International Monetary Fund chief Dominique Strauss-Kahn from last minute negotiations. The even hand and sure council of the former French presidential hopeful is gone as the man defends himself against accusations of sexual misconduct in New York. As the effects of the worst recession in eighty years continue there is always the risk of governments repeating the mistakes of the past. It is not clear, with eighty years of hindsight, that the worst of the Great Depression could have been avoided by an easing of monetary policy instead of the tightening of policy that occurred, especially in the USA. As with the issues relating to the Euro and bailing out Portugal traders will watch the big picture. If IMF officials and other choose to tighten monetary policy or even let one of the EU members default on its sovereign debt it could possibly lead to a succession of defaults and a devaluation of the Euro and other currencies. As such many traders are keeping their positions short in trading the Euro, buying options as insurance against unforeseen movement of the Euro, and looking to either the Swiss franc or the dollar as a safe haven currency in such troubling times.

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        Mexican Currency Exchange Rates

        Posted by TFNG Admin On June - 3 - 2011

        Mexican currency exchange rates are no longer just a concern for tourists. Mexican currency exchange rates have become an issue for currency traders as the world of emerging market currencies collides with high tech trading. The Mexican peso is actively traded in the world of emerging market currencies. How to trade Forex today with the Peso, for some, is by arbitrage between the CME and the Mexican exchange MexDer. The Mexican exchange is increasing its bandwidth and level of connection with the CME in order to allow for this degree of trading in thousandths of a second. What attracts traders to Mexican currency exchange rates or those of the Thai baht, Indonesian rupiah, or Singapore dollar is their relative volatility. This volatility in emerging market currencies is that promises large profits. Trades need to remember that large volatility can also lead to large losses.

        In trading Mexican currency exchange rates the trader will follow the same sort of economic news, monetary policy, interest rates, and political factors that traders follow when trading all currency pairs. The North American Free Trade Agreement has slowly but surely increased prosperity and growth of the middle class in Northern Mexico and throughout the country. As prosperity goes in Mexico so will, likely, the health of the Peso. It has always been possible to trade the Peso versus the Dollar. However, the addition of emerging market currencies such as the Mexican Peso to the list of possible currencies to trade with high tech tools could be profitable for both institutional and independent traders. As trading volume of the Peso increases so will the accuracy of Forex technical strategies in trading Mexican currency exchange rates.

        Forex trading and the economic news is as important a relationship when trading Mexican currency rates as it is for trading the dollar. The Mexican central bank recently kept its key interest rate at 4.5% for the 22nd consecutive month which helped the Peso rise slightly against the dollar. Although the direction of the Peso may well be upwards over time as the Mexican economy strengthens it is not so much the long term view of the Peso that interests traders as the day by day fluctuations in the currency. With the advent of high tech trading of emerging market currencies such as the Mexican Peso there will be more profits to be made and more risk of loss for the trader. For the international business interested in trading across borders the ability to trade directly in emerging market currencies will be helpful. Currently many emerging market currencies only trade with the US dollar. Thus to convert a currency such as the Mexican Peso with the Thai baht is has historically only be possible by trading one with the dollar and then the dollar with the other. It is possible that with higher volume currency trading in emerging market currencies that it will be possible to trade one directly with another, which might serve to foster increased trade and prosperity as well as foster more interest in Mexican currency exchange rates.


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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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