3.22.2009

Risk Appetite Seems to Be on The Rebound, But Will It Last?

There have been prominent recoveries for risk-laden securities across all most of the markets over the past week. Rallies in equities, bonds, commodities and key currencies have afforded us the first clear signal that the worst for investor sentiment may have already passed.

• Risk Appetite Seems to Be on The Rebound, But Will It Last?
• Without a Global Rescue Effort, Financial and Economic Instability Will Spread
• Are the Yen, Dollar And Franc Still Considered Safe Haven Currencies?

There have been prominent recoveries for risk-laden securities across all most of the markets over the past week. Rallies in equities, bonds, commodities and key currencies have afforded us the first clear signal that the worst for investor sentiment may have already passed. However, the bigger themes in fundamentals and trends in price action may keep skeptical and weary traders out of the market until indisputable confirmation can be justify a return to risk appetite. Looking at the markets this past week, anxious bulls have enough to go on. The Dow is 12.5 percent off its multi-year lows, crude is back above $50 per barrel and the high-yielding Australian dollar has rallied against most of its major counterparts. A recovery in so many markets is hard to ignore; but just as all asset classes succumbed to panic and fear back in October, it is just as likely that the these securities recuperate together. Of course, it can be a genuine, long-term recovery or a short-term relief in a much more pervasive decline. ‘Bear market rallies’ are common sites even in the midst of history’s worst market collapses. It is important to keep the sight of the bigger picture. Equities, commodities and the carry trade index are all still engaged in their worst trends in many decades. All it would take at this stage is a minor catalyst to foil the tentative recovery; and there are plenty of these fundamental dangers looming.

The deflation in investor confidence over the past year and a half been extensive and profound. In fact, it has come to the point on more than one occasion that appetite for yield (a permanent element of investing) was completely abandoned for any bastion of security and liquidity. Inevitably, this need for safety of funds will pass; and the balance of risk / reward will once again level out – encouraging traders to take a measured level of risk for the hope of making returns above and beyond what mere government interest rates can provide. However, fundamentals could defer this fated happy ending for quite some time. First and foremost, the global economy is still embroiled in its worst recession since WWII. More importantly, we have yet to see evidence that the slump in economic activity is easing – so a bottom may very well be a long-way off. When economic conditions do bottom out, there is still the issue of yield. Global interest rates (the foundation for all rates of return) are quickly approaching zero. The reinvestment of capital into speculative assets will be slow and cautious as leverage will initially be difficult to come by and the bulk of the crowd will wait until market leaders can produce a definitive recovery. Over the next two weeks, focus will fall on the effectiveness of the Western government’s efforts to stabilize their own economies. So all attempts to turn growth around have failed; and there is a growing consensus that only a global rescue plan can cure the world’s ails. The best hope for coordinating such a politically-charged endeavor will be the G-20 meeting on April 2nd.

Written by John Kicklighter, Currency Strategist
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What is Forex?

If you would go out on a dinner with your friends or family and you mentioned that you were trading on the Forex market most of them wouldn’t know what you were talking about. The worst thing is that most of the Forex traders that join the Forex market don’t know what they are doing. Understanding what Forex is, is the first good step to your success at Forex trading.


The foreign exchange market (Currency, Forex, or FX) is where currency trading takes place. It is where banks and other official institutions facilitate the buying and selling of foreign currencies. Forex transactions typically involve one party purchasing a quantity of one currency in exchange for paying a quantity of another. The foreign exchange market that we see today started evolving during the 1970s when world over countries gradually switched to floating exchange rate from their erstwhile exchange rate regime, which remained fixed as per the Bretton Woods system till 1971.

Today, the Forex market is one of the largest and most liquid financial markets in the world, and includes trading between large banks, central banks, currency speculators, corporations, governments, and other institutions. The average daily volume in the global foreign exchange and related markets is continuously growing. Traditional daily turnover was reported to be over US$3.2 trillion in April 2007 by the Bank for International Settlements. Since then, the market has continued to grow. According to Euromoney's annual Forex Poll, volumes grew a further 41% between 2007 and 2008.

Forex Turnover

Forex Turnover
Main foreign exchange market turnover, 1988 - 2007, measured in billions of USD.
The purpose of Forex market is to facilitate trade and investment. The need for a foreign exchange market arises because of the presence of multifarious international currencies such as US Dollar, Pound Sterling, Yen, etc., and the need for trading in such currencies. Since you aren’t buying anything physical this kind of trading can be confusing. When buying a currency think of it as buying a part in that particular country’s economy because the currency rate reflects the economical situation of the country when compared to others.

Currencies

Currencies
List of most popular currencies on the Forex market

Forex used to be a closed market because only the “big boys” because you needed between 10 and 50 million $ to open an account. But today, with the development of internet, online Forex brokers have the possibility to offer their services to “little” traders. All you need to start is a computer, fast internet connection and information which you can find on this page also.

This enormous market is like the dangerous sea where you can meet lots of sharks and dangerous waters but at the same time it is the only one where two weeks of trading can hypothetically bring you $1,000,000 out of $1,000 of initial investment.

This is certainly hypothetically because a lot of newbie traders deal with their trades as gambling, that surely bring them to having nothing in the end. You should always keep the phrase "be careful!" in your mind. This market would give you its profit possibilities only if you learn the basic things hard and make lots of demo trading.

The statistics is that as much as 95% of traders come to losing their money at Forex, 5% have profit and less than 1% of traders make large fortune at Forex. You shouldn't produce, sell or advertise anything trading at Forex. Your assets are your knowledge, experience and a small amount of cash.

This market is a platform for banks, transnational corporations and individual traders to change the currencies they possess into other ones. This is the spot Forex market. At this market you can trade with up to 1:400 leverage which means that you'll get $400 on your account for each dollar invested. So, you can trade with the $400,000 sum having invested $1,000 onto your account.

Forex is unique among other world markets because in any time of day and night, somewhere in the world, a financial centre is open for business, banks and corporations exchange currency all the time, with a little lower frequency during the weekend.

Why to trade on Forex?

1. There is no commission fee for trading at Forex.
2. There is no intermediary, you can trade directly at Forex.
3. Forex is open 24-hours a day.
4. Nobody can influence the market for a longer period.
5. High liquidity.
6. Free demo accounts, analysis and charts.
7. Small accounts that allow everyone to try out his luck.

Hope this has answered a lot of questions you were asking yourself about Forex and that you can now start trading. Also make sure that you check out other articles on this blog which can help you earn your fortune.

Good luck to everyone!