allstaractivist note: Due to the introduction of High-Frequency Trading in 1998 (not to mention the recent collapse of stock markets across the globe), the average investor really has no place in the markets anymore. There may be two sensible investments however, as part of a well diversified “safe haven” wealth protection scheme. Barring the worst case scenario of WWIII and fiat currency losing all value, (in which case physical or barter will rule) the traditional Currency ETF may be a smart move. With markets crashing all over the world though, choose your ETF wisely. The Swiss franc seems to be the safest for now. You can alternatively, invest in the HFT funds themselves (all two of them). Virtu (Virtu Financial Inc. VIRT U.S.: Nasdaq) is the most successful and has only lost money one single day out of six years. Their nearest competitor, KCG Holdings, Inc. (KCG) –NYSE, has also gained during this global crash. Unlike Virtu however, they have suffered losses in the past. Physical Gold will probably hold steady and be a safe bet since the BRICS are moving to a gold backed currency, but it has dipped $22 in the market crashes too. Of course if you are positioned badly right now, it may already be too late. Better hurry up and find shelter quick cause a shit storm’s a comin… I’m one of the lucky ones though, I don’t have any wealth to worry about! 🙂
Find definitions for key Forex trading terms along with introductions to the concepts, people and entities that impact
Safe Haven Currency
Safe haven currencies are usually those heavily traded, thus most liquid, and/or not affected by a given geopolitical turmoil-one that takes a neutral stance. Some traders turn to these currencies for funding to avoid volatility.
The Swiss Frank (CHF) and the US Dollar (USD) are known as safe haven currencies. While not a currency, Gold (XAU) is also a safe haven for people looking to protect their money.
Safe Havens In Foreign Currency ETFs
Investing in currencies remains a foreign concept to most investors for two major reasons. First of all, the average investor does not have the knowledge to determine how currencies fit into their portfolio and they do not know which currencies to own. The second factor has to do with how an investor will gain access to currencies. (For related reading, see Currency ETFs Simplify Forex Trades)
Whether you have ever invested in currencies in the past or not, I suggest you continue reading to determine if currency ETFs are a good fit for your portfolio. The obvious benefit of a currency ETF is diversification away from a traditional equity portfolio. They also could hedge a portfolio against situations such as a bear market or the demise of the U.S. dollar.
TUTORIAL: Forex Currencies
Lesson 6: Fundamental Analysis
6.2 Reaction of the Forex Market to a Fundamental Release
Lets take one through an example of how to use a fundamental data release to trade Forex. Then we will show an example of a political crisis.
On November 3rd, 2006, the United States Department of Labor released a monthly report called the Non Farm Payroll. This fundamental indicator (the term for a report or release) measures the change in employment in the United States for the previous month, excluding the farming sector.
For this release the figures came in above expectations of economists. As a result the Dollar strengthened that day as the data suggested that the labor sector of the US economy was doing better than expected.
As you can see, on November 3rd, there was a huge surge as price moved downward from around 1.2770 to 1.2680, a move of 90 points, or “pips” in forex lingo. There aren’t any other candles in the surrounding time period where price moves as much as the 30 minutes after the release of the Non Farm Employment data.
Nukes This chart shows the reaction of the currency market to a geopolitical crisis. In this crisis, North Korea detonated a nuclear weapon in a test of their nuclear capabilities. How a particular currency will respond to geopolitical dangers depends on many factors. Here, the Japanese Yen suffers because it is a neighbor of North Korea and because the two countries have tense relations they are opposed to each other militarily. Obviously, any attack by North Korea on Japan would damage the Japanese economy. When traders got wind of these developments on Friday, October 6th, they sold the Yen and bought the Dollar. The price changed around 100 pips, meaning the amount of Yen you needed to get one Dollar went up from 117.90 to 118.90. Or, in other words it now cost one more Yen to buy a US Dollar.
Since a nuclear test by North Korea is very Yen negative, the Dollar would do better since it’s the opposite currency in this particular pair. The Yen’s weakness withstanding, the Dollar would have still gained on this geopolitical event because it is considered a “safe haven” currency. During times of danger, investors will move their money out of riskier investments and put them into more stable ones. Since the US is the sole superpower left in the world, it naturally attracts those investors that want to park their money in a safer economy.
The US’s “safe haven” status doesn’t always work in times of danger in the world. If there is a geopolitical event that directly affects the United States, such as a terrorist attack, or something less immediate, such as military posturing against a state like Iran investors might sell the Dollar. Traders would be worried that the threats might come to action and there would be a war between the two countries. A war with Iran weakens the Dollar because the US economy is so tied to the oil market, of which a large proportion travels through the Persian Gulf. A military engagement against Iran would disrupt oil deliveries and cause hardship for the American economy in other ways. So, as we mentioned before, there are many factors to consider during a political crisis to see what effect it will have on a particular currency.
Forex Basics Lessons
- Setting Up An Example
- Opening two Positions
- Initial Changes, 4 Hours Later
- The Next Day, 24 Hours Later
- Candles Can Paint A Story of Wild Activity – 26 Hours Later
- Retraction from a Big Move – 30 Hours Later
- Two Days Later – 48 Hours Later
Analysis and Trading Lessons
- The Role of Central Banks
- Market Reactions to Central Banks – FOMC Example
- FOMC Example Continued
- Central Banks You Need to Know
- What are Fundamental Factors?
- Reaction of the Forex Market to a Fundamental Release
- Macroeconomic Indicators
- Inflation and Inflation Indicators
- Employment Indicators
- Chart Types
- Concept of Support and Resistance
- Trend Reversal Patterns
- More Reversal Patterns – Various Tops and Bottoms
- Continuation Patterns
- More Continuation Patterns