Continuning on from the earlier discussion of the falling dollar. I’d like to know what what causes currencies to ap. and dep. I vaugely remember from my finance class in which we did currency hedging. But that was basically over a year ago and I havent had any reason until now to refresh myself on those materials. Im also tempted to invest in foreign currencies myself amid the falling dollar. However, I realize I need to understand a lot more b/f I do the ol ima make it big through etrade or investools mentality w/ no experience. (hate that investools commerical. see it everyday on cnbc at work) Also, quite possibly it maybe the best time to invest in the dollar. I really don’t know. But I want to find out more. Thx.
In the short term supply and demand, and this is very difficult to measure and hence, it is very difficult to make money in the currency markets Long term it’s driven by the fundamentals mention REAL interest rates, various account balances, the health of that currencies economy etc.
CFA_Halifax Wrote: ------------------------------------------------------- > In the short term supply and demand, and this is > very difficult to measure and hence, it is very > difficult to make money in the currency markets > > Long term it’s driven by the fundamentals mention > REAL interest rates, various account balances, the > health of that currencies economy etc. Currency is a zero sum game just like other markets.
Yeah right. Derivatives on currency may be a zero sum game, but currency fluctuation is not even in the same galaxy as a zero-sum game.
former trader Wrote: ------------------------------------------------------- > CFA_Halifax Wrote: > -------------------------------------------------- > ----- > > In the short term supply and demand, and this > is > > very difficult to measure and hence, it is very > > difficult to make money in the currency markets > > > > Long term it’s driven by the fundamentals > mention > > REAL interest rates, various account balances, > the > > health of that currencies economy etc. > > > Currency is a zero sum game just like other > markets. I understand that, I am just saying that there are many irrational movements in the currency markets ST
I actually don’t think it is all that difficult to make money in currency markets. The deal is that there are a bunch of fairly easy ways to get an expected rate of return commensurate with the risk you are taking even in zero-sum derivatives. The return you get is only lightly correlated with equity and interest rate markets. The problem is that it is really skewed (negatively for you) so you have some really bad days. That causes a serious portfolio/risk management problems. The deal with currencies is that currency movement is not especially random as central banks are huge non-economic players. Central banks have several goals that are pretty easy to gauge including a) implementing policy decisions (sounds simple, see Soros’ comments after his billion $ day); b) keeping volatility low to facilitate international transactions; c) keeping volatility aversive enough that traders can’t use goal b) to their own advantage. Add to that some technicals that go with everyone else knowing about a) - c) and there is plenty there to trade.
That’s true, but don’t you think that on a risk adjusted basis (ie by measuring std dev of returns) currencies are a tough racket to make money in. I admit I’m a hypocrite, as I’ll be the first to say which currencies I think will be hot and vice versa, but I see these as extremely speculative bets.
Chuck Norris makes all currencies depreciate every time he sneezes.
CFA_Halifax Wrote: ------------------------------------------------------- > That’s true, but don’t you think that on a risk > adjusted basis (ie by measuring std dev of > returns) currencies are a tough racket to make > money in. I admit I’m a hypocrite, as I’ll be the > first to say which currencies I think will be hot > and vice versa, but I see these as extremely > speculative bets. I think on a risk-adjusted basis all asset classes are the same and currency trading in reasonably smart ways is just another asset class.
Joey, I know that, theoretically, independent risk factors should be priced the same on a risk adjusted basis, because people would shift allocations to the better paid factor until things readjust to the same. But do you think that is actually the case? I would think that regulatory factors and differing utility needs, and just the complexity of some risk factors would mean that, in fact, some are paid more than others.