Archive for September, 2009
If history has proven one thing about the market downturn, is that the shares, the investment of choice for most retail investors, lead quite severe beatings. This means that stock-based mutual funds will follow suit and depending on the depth and breadth of the collapse of the market, securities and commodities can join in the fun, or lack thereof. With so many asset classes for many vulnerable markets taciturn, which is an investor who wants more than the interest rates tiny offered by money market accounts to do? The foreign exchange market may be just the solution that investors in stocks and mutual funds tired are looking to get back into The Game.
Not afflicted with Cold The Same
When the market starts to turn down, the process may be slow to start, but when the Bears really want to growl, sure, they will growl. Typically, the recession will start with one sector and then as a case of sniffles through a kindergarten class, the next thing you know that each sector is infected, and even the good stocks are falling, leaving investors running for cover, but finding little in the way of protection.
We already talked about how it affects the mutual funds, many Sometimes the biggest holders of the largest shares being sold, but commodity bear markets are similar. Take the bursting of the commodity bubble in 2008. Almost all commodities under the sun had risen to the moon through the second half of 2007 and first half of 2008. Then the party came to a crashing end and all the guests were expelled from the door. Again, there is literally no place to hide from investors, unless they wanted to put their money in low-income markets as alternatives monetary and CDs
That's the great thing about forex. Although the market for a currency can be rude, you can bet other currencies are thriving. Actually, that's what we're doing, when trading currency pairs. We are exploring strength of a currency against another or if we are short, we are harnessing the weakness of the currency, compared with one of his rivals.
Where to turn when other Markets Head South
This is kind of difficult question to answer because the answer depends on what the markets are spiraling downward. Investors may think that if U.S. stocks are back to time may in the short term the dollar. This is inaccurate. History has shown that the foreign currencies that are seen as "risky" to the dollar U.S., as the euro, British pound and the Australian and New Zealand actually suffer when U.S. stocks fall. This is because international investors are seeking safe havens for investment, and the dollar is the number one safe haven. The Japanese yen is the number two destination in the list of safe haven currency.
Another way to play currencies during the recession of the market is looking at the performance of rel = "nofollow" href = http://www.dtsinvestments.com/futures_trading/brian_schad.aspx "> Commodities, namely oil and gold. The Canadian dollar is what is known as a commodity currency and commodity is not connected to the oil. Put simply, there is empirical evidence that suggests that when the price of oil falls, so does the Canadian dollar. The Canadian dollar (also known as "crazy") follows the oil, so if you see oil prices falling, the loonie will not be far behind.
Yet another drop in commodities for gold is worth watching. The Australian dollar is closely linked to gold prices, and as we would short the dollar Canadian, when the decline in oil prices, we look at shorting the Australian dollar as a decline in gold prices.
Is Forex Ideal Hiding Place?
Well, it all depends on your risk tolerance. To be sure, the foreign exchange market may peak of volatility in other markets are collapsing. The advantage of investing in forex during the market downturn is that the fundamental factors that can negatively impact stocks and commodities are absent foreign exchange market. A currency will not be taken to the fire of the market because of glum earnings reports, lost market share, not acquisition or sale by institutional investors.
Similarly, the commodities can be affected by costs associated with the entry of drilling or mining or the cultivation of the product. Then there are geopolitical factors such as wars and political upheavals that could impact the prices of commodities. Yes, these coins can have an impact also but it is highly unlikely that a strong currency as the pound or dollar would be severely hampered by political turmoil.
In many respects, the factors cited make forex a great place for investors to park their money when they were driven out of stocks and other asset classes. No, you do not going to get the security of a money market account, but without taking some risk, it is difficult to draw any reward.
And when markets are trending down, that can be the best time to embrace the risks of investing in forex.
Forex Trading, The Dollar, Gold