The following article presents the very latest information on Introduction Fundamental Analysis. If you have a particular interest in Introduction Fundamental Analysis, then this informative article is required reading.
As the EUR/USD breaks 1.50, investors should take another look at foreign exchange. 100/barrel oil, $1,000 gold, and $10/bushel wheat are not anomalies, nor is there a bull market in commodities. The US dollar is losing its value and its relevance as a world reserve currency.
What determines the value of a dollar? The common belief is that purchasing power determines the value of money, which is partially correct, but that is not the entire story. In a world of floating currencies, money is also valued in terms of other money. Simply opening a bank account in Europe, and gaining a few % per annum interest, would have returned a US based investor over a 50% return in 5 years. There are a few ways to look at that, but they all point to the same conclusion: the value of the dollar is declining. The other logical observation is that by NOT investing in the Euro, an investor is actually LOSING 50%. This is a difficult mental leap for many to make as they don't see losses in their bank account, but as we see $4/gallon gas, $3/gallon milk and skyrocketing commodity prices, many are noticing. They only have to realize the simple fact: prices are not increasing the value of US Dollars is declining.
Who is not affected by a declining dollar? The poor, debtors, manual laborers, and tradesmen (because you can continue to perform your trade for dollars, pesos, or bananas if need be regardless of the continuing slide of the dollar tomorrow you may charge twice as much but so what?) But if you have any wealth; a house or a stock portfolio, denominated in dollars, the declining US Dollar should be the most important issue to you because that portfolio is losing value as the dollar does. In the worst case scenario, the Fed can default making US Dollars worthless overnight.
Best case, although unlikely it should be mentioned, the Fed could raise rates to 10%, Bush could declare a flat tax, open the borders to foreign investors by deregulation and providing tax incentives, pull out US Military from all foreign engagements, and be the banker of the world. This would catapult the US economy and the US Dollar to currently unimaginable success, but this is a farfetched fantasy. In reality, we are increasing our Military presence around the world, cutting interest rates, and regulating US markets, forcing even homegrown companies to look abroad.
Let's examine why the dollar is declining and what can potentially stop the decline.
The largest player in the US Dollar is clearly the Fed, the sole issuer of the US Dollar. Investment Banks and Hedge Funds, at the end of the day, rely on the Fed for regulation, clearing, liquidity, and currency controls; they are distributors and traders of US Dollars not the manufacturer. It clearly states on the Fed's website that the Fed conducts foreign currency operations in the open market, and maintains US holdings of foreign currency and swaps. This would indicate the Fed has the ability to intervene in currency markets in order to protect the strength of the dollar, and although the Fed may have that ability, it states in the same article that:
US monetary policy actions influence exchange rates. The dollar's exchange value in terms of other currencies is therefore one of the channels through which U.S. monetary policy affects the U.S. economy. If Federal Reserve actions raised U.S. interest rates, for instance, the foreign ex-change value of the dollar generally would rise. An increase in the foreign exchange value of the dollar, in turn, would raise the price in foreign currency of U.S. goods traded on world markets and lower the dollar price of goods imported into the United States. By restraining exports and boosting imports, these developments could lower output and price levels in the economy. In contrast, an increase in interest rates in a foreign country could raise worldwide demand for assets denominated in that country's currency and thereby reduce the dollar's value in terms of that currency. Other things being equal, U.S. output and price levels would tend to increase must the opposite of what happens when U.S. interest rates rise.
The Fed therefore officially controls exchange rates of the US Dollar through Monetary Policy. The Fed, in response to a weakening US economy and a Subprime crisis, has taken an aggressive policy of cutting interest rates, thus dropping the dollar.
So we cannot expect the Fed to solve the weak dollar issue, because they are the creators of it! The Fed could start aggressively raising interest rates and we could see the dollar soar to new highs. But there is a low chance of that happening, as they have indicated the contrary. As the credit crisis unravels, we can expect the Fed to continue cutting rates. With a weak stock market, a weak real estate market, and a weak economy, we can expect more doom and gloom before we see the light at the end of the tunnel, and in the meantime the US Dollar can sink another 80% or more, as the Great British Pound did when it lost its status as reserve currency.
Technically, once a downward spiral starts in currency, it is very difficult to stop. In stocks, an issuer can buy back shares in order to dry up liquidity and stabilize the price; a common practice among penny stocks listed on pink sheets. However if the US Dollar declines, the Fed would need Euros in order to buy back US Dollars, and since the Fed is not an issuer of Euros, it would take a near act of God to convince the ECB to loan the trillions necessary to support the dollar in the event of a default or run on the banks. While the Fed does have some mechanisms in place to stabilize the markets, the act of supporting your own currency is like pulling yourself out of a sinkhole by your own hair. Once the selling starts, it could feed on itself and create a downward spiral as the value goes down more large holders, worried about further losses, may panic and sell, thus adding fuel to the fire.
It would be anything but capitalism if we didn't profit from this once in a lifetime opportunity of a declining dollar. On one hand, wealth will be wiped out en masse on the other, it will be created. A transfer of paper wealth from USD to Euro and other currencies is inevitable; why be on the wrong side of the fence? Germans, Argentineans, Japanese, French, British, Italians, Turks, and many others, can attest to the events surrounding currency collapse and hyper inflation. They say it cannot happen to USA because of the TBTF Too Big to Fail Policy, a fallacious reasoning that came out of a Senate hearing on banking regulation.
All the facts and economic data point to massive dollar sell-off look at a USD/CHF chart and you can plainly see it has already started.
FX as an asset class
There are many ways to invest in FX as an asset, but this should be done only with the help of a qualified professional or someone with experience in FX. Everbank offers foreign currency CD's and foreign currency deposit accounts: https://www.everbank.com/ This will not excite most investors but at least you can have non-dollar denominated deposits insured by the FDIC.
For a more versatile approach, CTA's offer FOREX Managed Accounts, usually with minimums starting at $10,000. These accounts are pure FX trading strategies, some are extremely conservative and others are extremely aggressive. Various strategies can be implemented on these accounts which vary from simple news and economic analysis by traders with 20 years experience, to fully automated quant systems.
If you find yourself confused by what you've read to this point, don't despair. Everything should be crystal clear by the time you finish.
Funds such as the MERK hard currency fund offer FX specific returns as a mutual fund. From their website: http://www.merkfund.com/
The Merk Hard Currency Fund (MERKX) is a no-load mutual fund that invests in a basket of hard currencies from countries with strong monetary policies assembled to protect against the depreciation of the U.S. dollar relative to other currencies. Many consumers are aware of the falling dollar but don't know how to protect their capital against its decline. Others are uncomfortable choosing specific foreign currencies to invest in or investing in currency derivatives. The Fund may serve as a valuable diversification component as it seeks to protect against a decline in the dollar while potentially mitigating stock market, credit and interest risks-with the ease of investing in a mutual fund. The Fund may be appropriate for you if you are pursuing a long-term goal with a hard currency component to your portfolio; are willing to tolerate the risks associated with investments in foreign currencies; or are looking for a way to potentially mitigate downside risk in or profit from a secular bear market.
Hedge Funds are another venue for FX investing, but they typically have a $1 Million minimum and employ risky strategies.
FX Overlay
If a business or portfolio has exposure to multiple currencies, a hedging program can be implemented that combines multiple strategies to deal with currency risk. Large corporations such as Intel may have their own treasury desks, but smaller companies or financial firms may not have the resources or knowledge in place to justify such programs, however there are many companies who offer this service, or it could be built using proven models from the ground up.
FX as an industry
Explosive growth opportunities exist in the FX industry as US based investors take notice. The real opportunity in FX is in marketing, because of the widespread lack of knowledge about FX. Sadly, you don't need to know much to make a fortune in this field, and it's the marketers that will ultimately make the most, as they introduce an uneducated and unenlightened public into the most significant market of our age. What will out of work real-estate developers do as the market continues to weaken?
Beware FX Scams!
Because FX is completely deregulated, FX attracts many criminals. The allure of a secretive market only traded by large banks makes a good pitch to unsuspecting suckers. However there are a few easy ways to determine scams from the real thing, such as the NFA, CFTC, SEC, or by dealing with only companies and individuals who associate themselves with large FX firms who are registered with the NFA. The fact that FX attracts criminals doesn't diminish the opportunities in FX any more than the movie oiler Room proves that all stock brokers are cocaine snorting crooks.
This article is by no means exhaustive nor is it intended to be. Regarding bias on the topic, considering we are in this business, the fact that these opportunities exist, and the fact that dollar is declining, is why we ARE in this business and not in stocks or bonds. A day may come where FX is the only significant market left in the world, as domestic exchanges are ravaged by reckless monetary policies and rogue political administrations. In the meantime, protect yourself against calamity and position yourself to capitalize on the opportunity of a lifetime.
If you aren't familiar with Elite E Services, we recommended buying Gold at 279 and investing in New Zealand Dollars in 2002 when the NZD/USD was .39. George Soros made his fortune trading currencies, not selling stocks. In the mid-1990's, Intel made more money in FX than selling processors.
February 26th, 2008 - This day will be remembered by many as the last day of the Dollar's reserve status. May we remember the US Dollar well, in the good times.
About the Author
Elite E Services, a registered CTA and NFA member, develops automated foreign exchange trading systems. With over 100 years combined experience in FX, and over 100 combined years experience in I.T., Elite E Services is leading the cutting edge of systems development for the past 10 years. EES offers managed investment accounts, market analysis, automated trading systems, and custom programming. Elite E Services has companies in 3 countries and clients in over 50. Last year, EES was featured in leading industry publications as a top ranking CTA.
About the Author
Elite E Services, a registered CTA and NFA member, develops automated foreign exchange trading systems. With over 100 years combined experience in FX, and over 100 combined years experience in I.T., Elite E Services is leading the cutting edge of systems development for the past 10 years. EES offers managed investment accounts, market analysis, automated trading systems, and custom programming. Elite E Services has companies in 3 countries and clients in over 50. Last year, EES was featured in leading industry publications as a top ranking CTA.
Now you can be a confident expert on Introduction Fundamental Analysis. OK, maybe not an expert. But you should have something to bring to the table next time you join a discussion on Introduction Fundamental Analysis.
Great Forex Books
Tuesday, October 28, 2008
New Paradigm in Euro Currency
Labels: learn forex, learn fundamental analysis
Posted by Dony at 11:51 PM 2 comments
Introduction to Fundamental Analysis
Current info about Fundamental analysis for beginners learning activity is not always the easiest thing to locate. Fortunately, this report includes the latest Fundamental analysis for beginners learning activity info available.
Most FOREX traders rely on analysis to make plan their trading strategy. This article will discuss fundamental analysis. The other common form of analysis is technical analysis. After reading this article you should have a better understanding of fundamental analysis and how to use it as part of your FOREX strategy.
Political and economic changes are the basis of fundamental analysis. These can frequently affect currency prices. Traders that take advantage of fundamental analysis will gather their information from a variety of news sources. They are looking for information about unemployment forecasts, political ideologies, economic policies, inflation and growth rates.
Fundamental analysis will provide you with an overview of currency movements and a broad picture of the economic conditions. Most traders then will combine their fundamental analysis with technical analysis to plot actual entrance and exit points as well as confirming the information provided by their fundamental analysis.
Just like most markets the FOREX market is controlled by supply and demand. Many economic factors can affect the supply and demand but the two most critical ones are interest rates and the strength of the economy. The over all strength of the economy is affected by changes in the GDP, trade balances and the amount of foreign investment.
There are many economic indicators released by government and academic sources. These indicators are usually released on a monthly basis but will sometimes be released weekly. These are pretty reliable measures of economic health and are closely followed by all traders.
If you find yourself confused by what you've read to this point, don't despair. Everything should be crystal clear by the time you finish.
There are many indicators that are released but some of the most important and commonly followed are : interest rates, international trade, CPI, durable goods orders, PPI, PMI and retail orders.
Interest Rates - can cause a currency to either strengthen or weaken depending on the direction of movement. In some cases high interest rates will attract foreign money, however high interest rates will frequently cause stock market investors to sell of their portfolios. They do this believing that the higher cost of borrowing money will adversely affect many companies. If enough investors sell of their holdings in can cause a downturn in the market and negatively affect the economy.
Which of these two affects will take place depends on many complex factors, but there is usually an agreement among economic observers as to how the current change in interest rates will affect the general economy and the price of the currency.
International Trade - If there is a trade deficit (more items imported than exported) it is usually considered a negative indicator. When there is a trade deficit it means that more money is leaving the country to buy foreign goods than is entering the country and this can have a devaluing effect on the currency. Usually though trade imbalances are already factored into the market consideration. If a country normally operates with a trade deficit then there should not be an affect on the currency price. The currency price will normally only be effected by trade differences when the deficit is greater than the market expected.
The measurement of the cost of living (CPI) and the cost of producing goods (PPI) are a couple of other important indicators. You should also watch the GDP which measures the value of all the goods produced in a country and the M2 Money Supply which measures the total amount of currency for a country.
In the US alone there are 28 major indicators, these can have a strong effect on the financial market and should be closely watched. This information can be found many places on the internet and is provided by many brokers.
I hope that reading the above information was both enjoyable and educational for you. Your learning process should be ongoing--the more you understand about any subject, the more you will be able to share with others.
Labels: fundamental analysis, learn forex
Posted by Dony at 3:06 AM 0 comments
Wednesday, October 15, 2008
Currency Trading for beginners!
Imagine the next time you join a discussion about basic forex for beginners. When you start sharing the fascinating basic forex for beginners facts below, your friends will be absolutely amazed.
10 years ago currency trading in the forex spot market was reserved for the big dogs. Today, small or big, the playing field has leveled. Let's look at key benefits for today's small forex trader.
Currency Trading
Trading currencies has been around for a long long time. The market for buying and selling foreign exchange has been in existence for as long as different countries have had different currencies. However, for many years the trading of one country's currency for another country's currency was reserved mainly for banks and big institutions. The birth of the internet has changed this and today this wonderful business of currency speculation is open for the big player in the same way as it is for the little player!
With the birth of the internet a new form of currency trading has emerged, retail trading. Retail trading means that you and me can open an account with an online forex broker and start trading currencies. The internet has allowed forex brokers to reach individual traders and offer them many of the services that in the past were reserved for big institutions and banks.
Forex Brokers
One of such services that the internet has facilitated the delivery of is the trading platform. Let me explain. Each forex broker offers as part of it's service a trading software which is downloaded to the users computer directly from the brokers website. Through this trading software/platform traders can view live currency rates, live charts, perform real time analysis of many currency pairs, test a forex trading system amongst many other things. The wonderful thing about these trading platforms is that they provide the trader with a real time accurate live connection to the market. The trader can actually see what the value of each currency pair is around the world live.
How can you put a limit on learning more? The next section may contain that one little bit of wisdom that changes everything.
The competition amongst online forex brokers has been very favorable for the small time forex trader like you and me. This has brought several advantages for the average person wanting to enter this business. Examples of such advantages are:
- Demo account: One of the biggest advantages online forex brokers now provide is the demo account. A demo account is a trading account that you can open with virtually every forex broker at absolutely no cost. Through this demo account the user can trade the forex market exactly as he or she would do with a live account. Same market conditions, same software/platform, same rates, same charts etc. - Spread: The spread is the difference between the bid and the ask price of a certain currency pair. The tighter this spread is, the more profitable a trade can be and the more favorable it is for the trader. Several years ago spreads for the most active and liquid currency pairs such as EUR/USD, GBP/USD, USD/CHF and USD/JPY could have been as large as 10 pip and even more depending on the currency pair. Today, depending on the forex broker, you can trade these pairs with as low as a 2 pip spread! - Account size: Many years ago you would need a very large amount of money in order to start trading the forex spot market. Today, many online forex brokers will allow you to open an account with them with as little as USD $300 (some with less).
Forex Markets
These are just some of the perks that have arisen as a result of the fierce competition amongst online forex brokers. As you can see, the forex market has opened it's doors for everyone regardless of size. With this many opportunities have come and will come in the near future.
Hope you enjoyed this short article and I wish you all the best in your trading
You can't predict when knowing something extra about basic forex for beginners will come in handy. If you learned anything new about basic forex for beginners in this article, you should file the article where you can find it again.
Labels: basic trading, Forex guide
Posted by Dony at 3:02 AM 0 comments
Short Introduction to the Forex Market
The following article lists some simple, informative tips that will help you have a better experience with forex for beginners.
Forex trading is a new and hot trend which is here to stay. This short but to the point article introduces the basics of what forex trading is, the importance of "sessions" and more.
Forex Market
Foreign exchange, or as it is referred to many times: “forex”, “fx”, or “currency exchange market”, is the term used to describe the trading of world currencies. A currency trade is the simultaneous buying of one currency and selling of another one, e.g. Buying US dollars with euros, buying British pounds with US dollars, selling Swiss francs for Japanese yens etc. The currency combination used in the trade is called a pair. We will dive more into this later on.
The forex market is by far the largest financial market in the world. Just to put things into perspective, the New York Stock Exchange (NYSE) daily volume fluctuates around US$30 billion per day. Forex market daily volume is estimated to be around US$1.5 trillion! In fact, daily world stock and bond market volume added up is only a fraction of the daily forex trading volume.
We always hear the word “market” after mentioning forex and this usually invokes the idea of a central market place like the
The following shows at what times forex trading takes place around the world:
Time Zone - GMT
City Open Close
The major dealing centers today are
This is also the reason why most of the action in the forex market happens within those timeframes (7 GMT –
Those of you not familiar with the latest on forex for beginners now have at least a basic understanding. But there's more to come
As you learn more and more about the forex market you will see that different forex trading strategies can be designed for different times within the 24 hour trading period.
As an example, throughout the Asian session it is common that most currency pairs do not trend much. In other words, they tend to move in a range. This is not always the case, but it is more common than not. Throughout the European session and the
In conclusion, the forex market has opened the doors to new and exciting opportunities for the smart trader. For those who have been trading for some time other markets, you know that it is a traders dream to have such a volatile and liquid market not to mention the speed of real time price fills today's forex brokers provide.
Good luck!
Labels: beginners guide, Forex introduction
Posted by Dony at 3:00 AM 0 comments
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