The US dollar was performing terribly this week against both commodity and safe currencies among signs of economic growth and on speculation that the Federal Reserve will lag with an increase of the interest rates.
Sunday, April 24, 2011
Icelandic Kronur: Lessons from a Failed Carry Trade
A little more than two years ago, the Icelandic Kronur was one of the hottest currencies in the world. Thanks to a benchmark interest rate of 18%, the Kronur had particular appeal for carry traders, who worried not about the inherent risks of such a strategy. Shortly thereafter, the Kronur (as well as Iceland’s economy and banking sector) came crashing down, and many traders were wiped out. Now that a couple of years have passed, it’s probably worth reflecting on this turn of events.
Forex Win to Loss Ratios
It has been observed that majority of the individual traders in the Forex market function with no trading technique; hence over the longer period of time, they incur high losses. A Forex trading system or tactic is gear to present you an upper hand in the Forex market.
Better to Work with a Systematic Approach
A Forex trading system verifies whether you are earning profit or not in a Forex market. If you make your trading in a methodical manner then your win to loss ratios will be better than the other traders or investors.
Good Trading System
An excellent trading system is that which has already been evaluated by the investors; hence it has an upper hand in the market and also deliver reasonable amount of earning on continuous basis. A gainful and money making Forex system may have win to loss ratio (the percentage of trades with winning to the trades with losing) of 80 percent.
On the other hand the profit/loss ratio on the volume of the standard win to the volume of standard loss may be 2-3 to 1. You can promptly discover that the mishmash of win/loss and profit/loss proportions (renowned as profitability ratio) enlightens you that the system is money making or not.
How Profitability of System can be Determined?
If you proliferate, the sum of profitability ratio must be more than one. Till the time you get this figure more than one, the system is gainful. Preferably the bigger figure is better
Forex System with High Win/Loss Ratio
You can work with more personal involvement with the system that exhibit high win/loss ratio. Besides that the big profit loss proportion presents worthwhile outcome of trading activities, even though you are not making ample sum to enhance the market liquidity.
Finally, it is the amalgamation of both the profit/loss and the win/loss proportions that are truly important. You must therefore, make an endeavor to look for the system in which mutually these factors are high.
What is PIP?
Forex Markets Focus on Central Banks
Over the last year and increasingly over the last few months, Central Banks around the world have taken center stage in currency markets. First, came the ignition of the currency war and the consequent volley of forex interventions. Then came the prospect of monetary tightening and the unwinding of quantitative easing measures. As if that wasn’t enough to keep them busy, Central Banks have been forced to assume more prominent roles in regulating financial markets and drafting economic policy. With so much to do, perhaps it’s no wonder that Jean-Claude Trichet, head of the ECB, will leave his post at the end of this year!
Time to Short the Euro
Over the last three months, the Euro has appreciated 10% against the Dollar and by smaller margins against a handful of other currencies. Over the last twelve months, that figure is closer to 20%. That’s in spite of anemic Eurozone GDP growth, serious fiscal issues, the increasing likelihood of one or more sovereign debt defaults, and a current account deficit to boot. In short, I think it might be time to short the Euro.
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