Decoupling FOREX investing from trading
Forex is a trader’s market. So many complex factors go into foreign exchange rates, it’s really impossible to conclude what will be the EUR/USD in 1 year, 10 years, or 50 years – as explained in Splitting Pennies. Investing in Forex is like betting on the weather. And frankly speaking, given the right climate, it can work. For example, during the post 9/11 global market, it was assumed that USD would go down, and it did – thus propping currencies like NZD, EUR, GBP, and others. Take a look at the monthly GBP/USD chart – interesting to ponder also because of possible Brexit looming:
It took the credit crisis of 2007 to reverse the trend. And in the end – looking back 15 years, what changed with the GBP/USD rate? Right back to where it was, 1.41 handle. With talk of Brexit, Bremain – what is a Forex investor to think? Flip a coin – you’ll have better odds. Psychological factors in Forex work against investors as well. Do you really have what it takes, to sit on a GBP/USD position for 6 years? From 2001 to 2007, it would have been without leverage, a 48% gain – with 10x leverage, or 10:1 – that’s 480% – plus the swap (which still would have been positive for a GBP/USD long in that time). So here’s a situation where the climate was ripe for long term Forex investment. Since then, such an opportunity hasn’t presented itself, with the majors. Maybe Brexit will be a new trend of GBP/USD – the start of a new super cycle. But it’s too complicated to bet on. There are other examples, such as the 4 decade long CHF bull run that ended with the SNB (Swiss National Bank) bending over for their US masters. Investors who bought CHF post Nixon shock, would have had without leverage 400% + return, since the recent super cycle top, and final meltdown and manipulation of the Swiss Franc.
Everyday, we wake up and check the markets – what’s the news? Even with a 24/7 dedicated analysis team, it’s difficult to even conclude what the market outcome will be, based on the facts. Market perception in Forex can be completely off. For example there are those that believe Brexit can be GBP positive post vote.
Investing in Forex requires years of experience, a crack analysis team, loads of investment capital to weather any short term storm, and nerves of steel.
Trading Forex
So, let’s explore ‘trading’ Forex – meaning – day trading, short term, to capture price movements, regardless of direction – as an investment strategy PER SE.
If anyone has ever tried trading Forex manually – it’s nearly impossible. Statistics about individual Forex traders can be misleading. Brokers are now required to publish statistics about accounts, how many are positive, and other data. …read more
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