# Help on assignment



## emily (14 August 2005)

hi
need help on the forex market. i did a search on it, and didnt quite understand.
can i get a little summary on how it works please from a traders point of view.(buy/sell).

where do u think the exchange rate is going in the next 6months(up or down) and why? this is the assignment question but in order to answer this, i need to know the factors that effects the exchange rate. can i have a sumary of the factors that impacts on the market please.


thanx =)


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## Smurf1976 (15 August 2005)

From a trader's point of view you're just buying one currency (eg, Japanese Yen) and selling another (eg, US Dollar) with the aim being that the Yen increases _relative to_ the Dollar. You profit from the difference. If it goes the other way, if the Yen fell relative to the Dollar, then you would lose money. Whether the currencies go up or down when measured against any other currency is irrelevant - we are only interested in how they compare to each other.

All currency pairs can be traded in this manner although in general most traders are not interested in less common currencies. Not too many trade forex using the currency of Iraq for example. Even New Zealand isn't that common apart from those who live in NZ and perhaps a few Aussies who find it an easy country to get information about - economic data etc. That said, there is someone, somewhere, trading practically everything. The most common pair to trade is the Euro / US Dollar.

Forex is normally traded on margin. That is, you deposit, say, $5000 margin on a $100,000 position. The upside is that it magnifies your gains. The downside is that it magnifies your losses. So if your trade moves 4% in this example then you either make a $4000 profit or a $4000 loss. So, a 4% move in the currency pair gave you an 80% profit / loss on your deposit.

Needless to say, you can go broke rather quickly doing this if you get it wrong so anyone thinking of trading forex ought to design a system and prove that it works on paper first. Then start trading relatively small amounts until you KNOW that it works. It must have positive expectancy - gains exceeding losses - or you will in due course go broke no matter what size your trades are. And you need to make sure that no single run of bad trades is going to send you broke either. This is done by proper position sizing and placement of stops.

Forex brokers in general will not allow you to trade without using a stop loss. The only way around this in most cases is to deposit sufficient funds to be able to set the stop so high that it becomes irrelevant. This is due to the leveraged nature of forex trading and to ensure that it's your money that is lost if it goes wrong, not the broker's.

I don't have a forecast for the Australian Dollar (AUD) since I don't need one for the way that I trade forex. That said, short term anything can happen in the forex markets but long term we have a Current Account deficit at about 7.2% of GDP which is VERY high compared to other developed countries. This is a negative for our currency which ought to encourage it to fall. On the other hand, demand for Australia's commodity exports counteracts this to some extent at least whilst we have ever rising commodity prices.

Also, it depends what you measure it against. The AUD could rise against, say, the USD (US Dollar) but fall against the NZD (New Zealand Dollar). That's just and example, not a forecast by the way. Likewise any other currency could rise against some currencies whilst falling against others. 

It's all relative since there's no fixed point of reference unless you compare the currency value to something physical such as gold or oil. That said, many regard the Swiss Franc as a relatively stable currency against which to compare others. But in practice the US Dollar is the world's reserve currency so most others (including AUD) are usually compared to USD especially by non-forex traders. There can be no guarantee that the USD will always have this role though and many believe that the Euro will replace the USD in this role. (That's just an observation of prevailing opinions and is not a forecast).


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## Coinz (15 August 2005)

Smurf talks a lot but knows little.

You're welcome to email me, Emily.

Coinz


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## TjamesX (15 August 2005)

Coinz said:
			
		

> Smurf talks a lot but knows little.
> 
> You're welcome to email me, Emily.




.....and Coinz alludes to the fact he/she 'may' know something but posts nothing.....  

At least with Smurfs post I can evaluate the knowledge for myself


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## It's Snake Pliskin (15 August 2005)

Coinz said:
			
		

> Smurf talks a lot but knows little.
> 
> You're welcome to email me, Emily.
> 
> Coinz




Share your wisdom! 

This forum is all about sharing it openly. Why private e-mail, it's not a pick up forum.


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## Smurf1976 (15 August 2005)

Coinz said:
			
		

> Smurf talks a lot but knows little.
> 
> You're welcome to email me, Emily.
> 
> Coinz



And would you like to tell us what your current (open now or at least within the past week) forex trades are Coinz (just to prove that YOU know more than the little that I apparently know)?

The only point that I can see that is even slightly confusing is the way that I have illustrated the effects of leverage using a 4% movement as an example. What I mean there is that your trade is valued at $100,000 at opening and you close it at $104,000. A 4% profit which due to the leverage is, in this example, 80% on your deposited margin of $5000. OK, we don't normally measure forex moves in % but I think I was sufficiently clear there for the purpose of illustrating the effects of leverage. Many people would not understand if I had said that the trade gained or lost x number of pips, so I used % for the hypothetical example to keep it understandable. I probably should have said 4% PROFIT to avoid confusion rather than a 4% move but other than that, it all seems pretty clear. I think most would have understood what I meant. 

So tell us all what I have said that is wrong...  

We could all learn something that way and I'm always willing to learn...    

My present running trades include buy JPY sell CHF and buy JPY sell EUR on the 10/08/2005. You can check these trades for yourself if you wish but suffice to say that they are profitable.  

I have no interest in a personal debate here and will not continue one. Let's stick to the markets, trading etc. YOUR answer to the question is, what exactly?


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## Coinz (15 August 2005)

_Smurf_... *yawn*

Coinz



			
				Smurf1976 said:
			
		

> And would you like to tell us what your current (open now or at least within the past week) forex trades are Coinz (just to prove that YOU know more than the little that I apparently know)?
> 
> The only point that I can see that is even slightly confusing is the way that I have illustrated the effects of leverage using a 4% movement as an example. What I mean there is that your trade is valued at $100,000 at opening and you close it at $104,000. A 4% profit which due to the leverage is, in this example, 80% on your deposited margin of $5000. OK, we don't normally measure forex moves in % but I think I was sufficiently clear there for the purpose of illustrating the effects of leverage. Many people would not understand if I had said that the trade gained or lost x number of pips, so I used % for the hypothetical example to keep it understandable. I probably should have said 4% PROFIT to avoid confusion rather than a 4% move but other than that, it all seems pretty clear. I think most would have understood what I meant.
> 
> ...


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## Smurf1976 (15 August 2005)

Coinz said:
			
		

> _Smurf_... *yawn*
> 
> Coinz



Profitable trading does tend to be rather boring. It's LOSING that gets exciting. So I'll take that as a compliment.


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## wayneL (15 August 2005)

Coinz said:
			
		

> Smurf talks a lot but knows little.
> 
> You're welcome to email me, Emily.
> 
> Coinz




Coinz,

The object of a public forum is to discuss things....in public.

This way everyone benefits. If we all start emailing each other, the forum dies.

Likewise, if we all insult each other, there will be some brief excitement, but then our more earnest contributers will drift off to more productive pursuits...same result, the forum dies.

In saying that we don't mind, and encourage robust debate. I know you will keep that in mind from now on. 

Thanks.


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## money tree (16 August 2005)

Coinz, Im wondering why a Yank (with typical arrogance and ignorance one would expect) is hanging around on a forum called AUSSIE STOCK forums. You aint aussie, you dont trade stocks, and certainly dont trade aussie stocks.

Add to that the fact that 100% of your posts are insults. Great track record.

"oh say can you see........"


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## emily (23 August 2005)

blahhhhhhhhhhhhhhhhhh......

hey,
Is there a website where i can get current information(facts and figures) for the following:
- supply and demand for currency (AUD)
- figures on current import and export of australian goods and services
- figures of capital inflow (borrowing from overseas or investments from      
  overseas) and figures in capital outflow (overseas investments/lending)
- inflation rates and purchasing power parity
- economic growth rates
- interest rates
- commodity prices
- international speculation and investment

i just need these information so i can determine from my perspective view if the exchange rates is increasing or decreasing in the next 6months.


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## bvbfan (23 August 2005)

> Is there a website where i can get current information(facts and figures) for the following:
> - supply and demand for currency (AUD)




Don't think there is specific data for supply and demand as such


> - figures on current import and export of australian goods and services
> - figures of capital inflow (borrowing from overseas or investments from
> overseas) and figures in capital outflow (overseas investments/lending)
> - inflation rates and purchasing power parity
> ...




These should be covered by the RBA  and ABS 


> i just need these information so i can determine from my perspective view if the exchange rates is increasing or decreasing in the next 6months.




You may also want to check the US Federal Reserve


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## emily (24 August 2005)

thnx..............
umm whats the us,japan,europe's inflation rate, and economic growth rates,commodity prices, exports and imports?
can u give me where u got the sources from...


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## bvbfan (25 August 2005)

emily said:
			
		

> thnx..............
> umm whats the us,japan,europe's inflation rate, and economic growth rates,commodity prices, exports and imports?
> can u give me where u got the sources from...




Try the Bank of Japan, European Central Bank (www.ecb.org)?
Bloomberg might also have some info there

Commodities prices try Kitco, London Metals Exchange (www.lme.co.uk), Chicago Board of Trade (www.cbot.com), Comex 
If you mean general commodities, if you want a gauge of commodity prices try the CRB Index (http://www.crbtrader.com) or the Goldman Sachs Commodity Index

Google will get you all you need if you spend some time going through different searchs


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## emily (30 August 2005)

thanks alot.........

at first i thought the foreign exchange market is pretty crap, but now im begining to like it.......i am now self-learning more about it.
can u tell me if this is right please..........

for example........
lets just say capital $5000  

Trade AUD/USD at 0.77  (lets round off to make things easier)
so.... 5000 x 0.77 = 3850 <--- this means traded 5g for 3850 US right ?

2weeks later....
say AUD/USD at 0.75 
so 1 dollar of US is 1.33 AUD

= 3850 x 1.33
=$5133 AUD    <----so trade 3850 US for 5133 AUD
$133 profit ?..................

is that right???


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## bvbfan (30 August 2005)

calculations looks right but you need to think about fees.

With FX trading currencies you'd be taking larger positions probably $100,000 US as minimum contract (you can leverage with $5000 depending on the company)

Have a look at the FX threads, but what you say 'could' be done with buying USD notes then selling them back 
Of course you'd need to find a place that would give you very close to the spot price which is unlikely, banks and FX converters usually charge a large spread.


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## emily (20 September 2005)

can i ask....... where do u think the interest rates is going in the next 6months... and why?

emily =)


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## krisbarry (20 September 2005)

Up by 0.25%, inflation levels are on the rise.  RBA will raise them no doubt within the next 6 months, as the upper levels of inflation are being tested as of late.

Baby Bonuses have been spent and major tax cuts for the wealthy have been passed all driving up spending, and thus inflation.

Petrol is driving up the cost of everything!

Raising rates will keep the RBA level of inflation under the 3% target range.


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## Smurf1976 (20 September 2005)

I see two distinct possibilities here.

1. Interest rates rise as inflation exceeds the upper limit of 3%. Combined with the petrol prices this would seriously kill a housing market that, in Sydney, is already falling at crash pace of 1% per month. 

2. Interest rates are cut as the economy starts to noticeably sag under the weight of the housing slump, rising oil prices and the general effects of massive consumer debt. 

Inflation would be allowed to exceed the upper limit, probably by some form of moving the goal posts. For example, they could start averaging it over 5 years or something like that and still claim it's under 3%. Or they could just point out that inflation isn't the _only_ goal of setting interest rates and mutter something about the national interest as justification for a cut. Things that are fixed, like the 2 to 3% inflation target, have a habit of becomming unfixed as soon as the target is actually hit.

If we go down this track then the falling rates / rising inflation scenario is typical leading into a recession to my understanding of history. While raising rates won't help the economy, at least a decision to do so would be a sign that the RBA sees the economy as strong. I doubt that will occur though of course it is possible.

Which of the two options do I think is more likely? Option 2 with the probable means of fudging the inflation having something to do with excluding "temorary" oil price rises or arguing that it is now more relevant to count bus/train fares and not petrol...


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## bvbfan (20 September 2005)

For my last assignment (with SIA) I forecast that rates would move up 25bp at December meeting, that was before the rise of petrol prices to current levels.

Now I'm just wondering whether retail sales will decline to pay the increased costs of travel. Personally I think it won't flow through just yet and inflation will pick up, retail sales will plateau out, and credit growth (credit card debt) will probably increase for next quarter or two.

I think the rising rate of inflation will force the RBA to move rates up, unless of course they somehow 'discover' that modern cars are using less petrol and can introduce a fudge factor into the CPI calculations, of course cars are now consuming 2.5L more per 100km than 5 years ago (it may be 10yrs, as I saw on report last few days)
They may also decide to exclude petroleum products from CPI but I can't see that happening

As Yaaz said in that 80's classic 'The only way is up'


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## Knobby22 (21 September 2005)

Smurf

I think if the oil price drops to say $50 then your first scenario is entirely feasable and interest rates will rise.

If oil keeps rising or stays where it is over the next year then this acts like an interest rate hike on demand and the interest rate ill stay at present levels.

If we see a drop in interest rates then another shock must have occurred which will not be good for anyone. The way property is in this country though, any cut in interest rates will reignite the property boom, unfortunately.


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## krisbarry (21 September 2005)

But everything costs more with higher petrol prices, which in turn increases inflation.

The RBA was 90% certain of a rate cut in the new year, that has now diminished to 10%.

Looks like a rate hike to me is on the cards....wooo hooo, cripple a few more property investors!

source:

TEN: 11:30 morning news


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## tech/a (21 September 2005)

Kris.

You really look like a fool when you answer like you have above.

Property investors gear themselves so that interest rates have little bearing on their overall stratergy.
The people who get belted are the double wage earners/possibly single parents/or simply wage earners who have over stretched themselves at the end of the boom.

Those that will get hurt most are those who you bleat about.

I've been where you are--- so when you've been where I am now you'll be in a position to make comment.


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## Smurf1976 (21 September 2005)

I think that interest rates are one of those "understand the market OR make money in the market but you can't do both" situations. OK, maybe it can be done but I've always found that at any given time both the interest rate bulls and the bears can usually make a case for rates to move up or down. And neither seems to acutally make a profit doing it.

The more I have learnt about trading the more I have convinced myself to not predict interest rate movements. The predictions business was getting way too expensive for me (due to losses) so I stopped seriously trying to predict these things. And the only thing I regret is not stopping much earlier. 

I know the orignal purpose of the question wasn't trading as such, just thought I'd add this in. Predictions can be educational but aren't necessarily the best way to make money in the market. Not for me anyway.


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## krisbarry (21 September 2005)

I disagree totally tech/a. You just want low interest rates to continue as that suit your current situation.

Property investors will leave the market in droves for 2 reasons:

House prices drop or interest rates go up.

Just like yourself, they are selling properties!  Why? house prices are dropping, so there is less return and secondly they have been warned of an interest rates rise soon.

I am not a fool, I am just calling it as I see it.


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## Bronte (21 September 2005)

You are nobodys fool krisbarry.


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## Kauri (21 September 2005)

Kris... Have you ever thought that with your insistence on living in the centre of town you may be depriving a village of one its most prized residents?


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## Bronte (21 September 2005)

Please ignore them.


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## krisbarry (21 September 2005)

I would personally like to see much higher interest rates, more interest means more in my savings accounts.

Bring back those 17% interest rates like in the 80's.  I would make a killing!

So would the pensioners!

I remember as a child getting a rate like this in my first savings account.

Ohh bring back the 80's

Greed is good, so I get told on this board, nothing wrong with it!


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## Smurf1976 (21 September 2005)

tech/a said:
			
		

> Property investors gear themselves so that interest rates have little bearing on their overall stratergy.



Agreed with your comments tech/a where it comes to property _investors_.

But what about the large number of amateur property _speculators_ who haven't even thought about a proper strategy in the first place?

The difference between the two is stark. One is professional with a long term plan. A bit like trading stocks with a strategy proven to work. The other is amateur and in it purely for capital gains. A bit like buying hot technology or mining stocks because they have already risen by a large amount.

Spot the difference? It is as clear as black and white.

Normally this wouldn't matter too much since owner occupiers and professional landlords greatly outnumber speculators. But it is no secret that the recent boom has been substantially driven by amateur speculators following the advice of reality TV shows and touring "investment" gurus promising near-instant riches simply by buying virtually any property. Remember that ANYONE can be a millionaire within months or at most a couple of years with no starting capital and practically no work required according to these "experts".

There is a huge difference between professionals and amateurs when it comes to risk management. No amateur will belive anyone advocating position sizing and limiting losses to 2% when trading stocks. No, you need to take big risks on junior mining or technology stocks because that's how amateurs think money is made in the stock market.

 Let's face it, not many of us on this forum made our first trades with a stop loss limited to 2% of trading capital and a strategy back tested and proven to work. Some might, but not the vast majority who rushed in to some hot stock, made a profit, thought they knew the lot and then promptly blew the lot. Sound familiar?

Risk management, positive expectancy and exit strategies are for those who just don't get it that this latest bunch of amateurs has it all worked out when it comes to the market and every trade they make is a _guaranteed_ winner. Risking the lot is perfectly safe when you're 100% accurate at predicting the market. Or so they think until it all comes spectacularly crashing down because amateurs don't have a clue about risk management.

Or we could look outside the financial markets to something physical. Consider how a qualified tradesman electrician wires a house compared to a typical handyman. In both cases the lights will work and there is power. But that nice fancy looking switchboard the tradesman insisted on is so your house doesn't burn down _when_ something goes wrong. The average handyman doesn't have a clue that the physical environment surrounding a cable, as well as the cable itself, determines the rating of the circuit breakers needed to safely protect that cable. Indeed the average handyman hasn't got a clue what I'm on about... And if you ask them about power factor then be prepared for an awfully blank look. And the end result is that whilst both will work, the handyman is _guessing_ that the risk of fire or shock has been adequately dealt with whereas the tradesman has properly _calculated_ the required equipment ratings as the law requires them to do. The professional has managed the risk to a minimal level (since nothing electrical can ever be totally safe by its very nature) wheras the handyman said "she'll be right" which it will, until that day when something goes wrong and then you're in big trouble.

Now, does anyone seriously believe that all these newbie landlords with 4 properties all on close to 100% mortgages have done any proper risk management calculations? Half of them probably don't realise that a 5% fall in the price, which has already happened in Sydney, would completely wipe out their equity given the huge leverage they are typically using. 

We are not dealing with professionals here but with amateurs with $ signs in their eyes. Amateurs who are already shocked to find that interest rates actually can be adjusted upwards. Amateurs who are shocked to find that property prices haven't risen by at least 10% this year so far since that 20% per annum is a guaranteed profit, right? Amateurs that never thought about what happens if the property is vacant or something expensive breaks. Or, more to the point, amateurs who never even thought they needed tenants in the first place and are purely counting on the capital gains to pay the mortgage, rates etc. when they sell.

Are these people properly prepared for tough times? Have they even considered that interest rate variations, price slumps, governments changing, recessions, destructive tenants and urgent repairs are perfectly normal occurrences which can be expected? I expect that tech/a _has_ thought of these things and is running a proper landlord's business accordingly. But does the average mum and dad speculation empire have such knowledge of the markets? I very much doubt it.


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## tech/a (22 September 2005)

Kris.

When interest rates rise I to will be as happy as Larry.Up will go my rents!
Demand for my rentals will sky rocket.My passive income will dramatically increase.If they dont rise for a while I will continue to use the low rates to my advantage.

Smurf.
The "Speculator" you insist is in a majority is in fact pretty well a minority.

To have 4 properties 100% geared by speculators with no or little servicing ability is nigh on impossible.They just wouldnt get the necessary $$s.

Insto's use a 2% filter on affordability and if that cant be serviced then no loan.Those that are over stretched or at their max have had to take out mortgage insurance so that if and when they get hit the insurance company pays the difference between sell and bank commitment.

This doom and gloom scenerio with all due respect is perpetrated by those who are not involved in it!

Sure housing will stabalise and sure prices will pullback to satisfy demand and sure there will be some carnage---but it wont be anything like wholesale bankruptcy for those "Stupid,greedy,dumb,speculators"

Armchair critics who love to commentate and critisise those who have a go and lement missed opportunity---should really get inside the glass house before throwing stones.
Seriously comments thrown around on this topic can clearly be seen as from people who deal in theory not from practice.

Id rather hear from Jack Nicholas on how to play golf than someone who has watched tournaments on T.V.


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## emily (29 September 2005)

thank you to u all for helping =)


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