Forex Currency Trading For A Living
August 21, 2010 by JoelC2009
The mechanisms of the foreign exchange market fall in the category of mysteries for many retail traders. Until very recently this market used to be the domain of mega financial institutions and multinational corporations but now it is exposed to everyone thanks to the Internet. But times change and individual investors are eager to try their luck at currency trading Forex transactions. Consider the following elements that define the market before starting to work on it.
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Currency has no regular exchange course. Trading Forex conditions are not controlled by a central body, there is no arbitration panel for disputes and the members usually work on the basis of credit agreements. If you are used to structured exchanges, you must forget everything you know; here, you have compete and cooperate with your competitors at the same time. Currency trading Forex environment actually functions as the most liquid and fluid market of the world.
Many businesses do not get involved in currency trading Forex transactions directly, but they hire dealers or agents to intermediate. The broker gets a commission from what the investors buys or sells. You won’t get charged any commissions. The risk is actually shared between dealers and the companies that they work for. Without commissions and fees, profit comes with every extra cent.
The nature of currency trading Forex is purely speculative. Nothing sells, nothing gets bought, because the currencies are not exchanged physically, but they merely work as computer entries. Only 20% of the activity on Forex are run for payroll, the payment of goods and services or exchange. The rest are just speculations.
Most investors trade the seven major currencies or crosses: British pound/dollar, euro/dollar, dollar/Japanese yen, Australian dollar/dollar, New Zealand dollar/Dollar, dollar/Swiss franc and dollar/Canadian dollar. Exotic currencies can also be traded but such cases are pretty rare. The largest part of the currency trading Forex speculations revolve around the seven main currency pairs. From this point of view, Forex is more concentrated as compared to the regular stock markets.
For further info on currency trading Forex strategies that work, there are plenty of articles, manuals and guides to consult. There are even courses that teach people how to operate on the foreign exchange market, creating the premises for developing future careers in dealership or brokerage. With knowledge and a bit of luck you should be a Forex winner!
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The inflow of capital is not the only reason for the high exchange rate. An increase in global demand for primary commodities has lead to an increase in the price of primary commodities. That implies that the demand for New Zealand commodities must increase, increasing demand for the New Zealand dollar.
Furthermore the capital story is not solely based on interest rates, if New Zealand businesses are paying high dividends or if share prices are growing strongly (which they seem to be) then there is an incentive for foreign investors to buy New Zealand dollars to buy shares.
Also the exchange rate is relative to other countries. Our exchange rate is at record highs against the US$ and the yen, but not against the pound, or the euro or the Aus$. Those records were hit back in 2005.
So the fundamentals I'm talking about are the high price for non-food commodities, the strong performance of the NZ stock exchange, the high interest rate and the weak US$ (in terms of all currencies).
Now, the cause of inflationary pressure is two-fold: Strong domestic demand (from growth in private and public consumption), and weak productivity growth. Simply put, the demand curve is shifting right faster than the demand curve, increasing prices. Now you put weak productivity growth down to a lack of investment, however gross fixed capital formation was very strong through 2004-2006.
Government legislation does have to take some of the blame for weak productivity growth (the RMA). However, I think part of the reason is that the capacity constraint of the economy was hit back in 2004, and since then we've been borrowing and trying to spend our way into economic growth. Here is where I agree with you, in so far as individuals have used houses as a form of saving, they have drained funds from productive investments.
The tax benefits for houses are debatable (except for the huge benefits from running it as a LAQC), however with a yield of less than 3%pa, housing seems like a strange long-term investment to me. As the house is solid, and exists, it gives people security, and thats something we can't take away from people.