World Currency Watch: FOREX Market, FOREX Trading BLOG

Why Traditional Forex Trading Is Dead and Has Been for 17 Years!

2009-11-19T13:21:19-05:00

Get ready traders because I’m about to tell you something that no one…not your broker…not a Forex robot…not a systems trader…or even your know-it-all Wall Street brother…will tell you.

The fact is that Forex trading as you know it, is dying a slow miserable death. In fact, it signed its death warrant 17 years ago when the market opened their doors to the retail public and flooded the market with new FX traders.

Today, the reality is there are so many FX traders in the world – so much money trading hands on a daily basis – that currency pairs just don’t make the big leaps in price or offer the big profits they did back then.

The good news? It’s not time to close out your FX account just yet.

Today, I’ll share with you why traditional Forex trading is D.O.A. and I’ll explain how one tiny modification in your FX trading could jumpstart your profits by 71% or more, and ensure that you never have to settle for mediocre Forex returns.

Kiss FX Trading Goodbye As You Know It

As all traders know, volatility = profits in the FX market. The bigger and faster the currency moves, the more profits you make.

The problem is volatility in the major currencies has died off in the last few years. Take a look at the EUR/USD chart below.

Euro Volatility Evaporates!

The euro/U.S. dollar pair used to trade about 300 pips per day. Today, the pair trades 132 pips a day (56% less!).

The euro isn’t alone. Several other pairs are also moving slower these days. Take a look at another very popular “major” currency pair – the British pound/U.S. dollar (GBP/USD).

Even the Euro’s More Volatile Brother Can’t Keep Up!

The British pound/U.S. dollar (GBP/USD) is traditionally a more volatile pair. Traders have loved this pair for years because it would trade up to 450 pips in a day. That led to some serious profit taking.

One problem. Today this pair only trades around 169 pips a day.

You Won’t Find “Crisis Volatility” Anymore

Even worse, it would take another major market crisis like we saw in 2008 to increase the volatility in pairs like the pound and euro once again.

You see stocks and currencies’ performance have been tied together for a couple years now. The reason? Both are considered “riskier” assets. So as stocks started to plummet, currency traders also rushed out of a few riskier currency pairs. Therefore, we had fewer traders buying and selling, and volatility shot up as stocks fell.

It was great at the time. This “crisis volatility” created lots of opportunities in currencies. After all, if a pair traded 450 pips a day vs. 169 pips a day, you’re much more likely to grab a 100 pip winner in a day.

But now that it seems the “coast is clear” (at least for now)…the volatility slowly evaporated, like a balloon slowly leaking air.

So basically, it took a credit crisis and global recession to stoke up the volatility as it did in these major currency pairs. Long-term, you can’t count on markets being in “crisis mode” to provide you continual volatility all the time.

So what’s the solution? What can a trader do? Markets will obviously return to normal eventually. So we need a fix…

Time to Swim in a Smaller, More Volatile Pond

You see, up until recently all traders swam in essentially the same Forex pond. Everyone made the bulk of their Forex trades versus the U.S. dollar. Why did they do this? Because for years, the U.S. dollar was the only real, viable trading vehicle in the Forex world.

It was also more cost effective to trade just dollar pairs. Many years ago, you could NOT find decent spreads on any pairs outside of the U.S. dollar. As you probably know, you pay the spread for each FX trade, so larger spreads meant higher fees.

So in plain English, it took too long to break even on each non-dollar trade, so traders didn’t bother.

Fortunately, times have changed. The increased volume in the overall market has caused a ton of volume to spill over into non-dollar pairs, or “currency crosses.”. As a result it’s narrowed their spreads.

In other words, it’s affordable to trade currency crosses today.

In fact, many of these crosses now have spreads that the majors did just a few short years ago. I remember one of these pairs going from a 30-pip spread down to a 6 pip spread…major difference! Now that’s tradable!

Internal Sponsorship

Are You Embarrassed By Our Government? Mad? Frustrated? Feel Victimized? Are Looking For A Legitimate Way To Fight Back, Reclaim Your Freedom And Resurrect Your
Portfolio To “Pre-Madoff” Days?

Well, the economy has not been kind to our wallets, health, or mental sanity. By government actions, bailouts of Wall Street, etc. – you’d think Americans had become evil-doers entangled in terrorist activities – treated unconsciously by our government, forced to endure one assault and air strike after another on our liberties, freedom, and portfolios. Early retirement, for most, only a figment of their imagination, like an oasis in the middle of the Sahara. Heck, we even take it to the chin when it comes to Swine Flu vaccinations, as the “fat cats” on Wall Street get the same number of doses as some public hospitals – reserved, for their private use, because of their “importance”. Heed my warnings: things are getting worse. America is becoming socialist. Over 100 years of history, everything our parents and grandparents stood for, that built America – gone, vanishing fast. And, burying your head in the sand like an ostrich, hoping, praying, ignorantly ignoring the situation certainly will not make things better. It’ll only delay the inevitable, worsening of the plague of financial stress and further tighten the “government shackles” that bind you.

Well, what would you say if I told you could EASILY resist such inevitable outcome, get back on track, and stay on track without breaking stride toward your financial goals? What if you could resurrect yourself, your portfolio, your financial future to “pre-economic hell,” before you lost 30-50% of your retirement with the same speed and velocity as a Howitzer cannon… without waiting 5, 10, 15 years, or putting all your “eggs” at the fate of the stock market? One man has the answer: Here’s the story…

You see, the dollar may be the world’s reserve currency, but it’s also the “world’s most overtraded currency.” After all, over 90% of currency trades involve the dollar in some way.

However, when the entire world “overtrades” an asset like this, we all lose a lot of the former opportunity..

Translation: That means more trading volume = less volatility and profit opportunities. It’s the same reason why a small cap stock is more volatile than GE or IBM.

Remember how volatile Microsoft stock was back in the day? Have you checked this stock out lately? It’s a yawn for sure. Why? Tons more volume. All your average Mom and Pop investors want good steady stocks like IBM for their retirement plans. That means you won’t find the nice big moves like back in the good ole days.

It’s the exact same with Forex trades.

Jumpstart Your Trades by 71% or More by NOT Trading the Dollar!

As I mentioned before the traditional euro pair (EUR/USD) has lost a huge chunk of its volatility over the last few years.

But that doesn’t mean you can’t still trade the euro. Just cut the dollar out of your trades. In fact, why not pair the euro with a fast mover like the New Zealand dollar? The EUR/NZD pair trades around 226 pips a day on average…a full 71% more PER DAY!

It’s like trading the euro on steroids. Check it out below.

The “Euro on Steroids” Pair

If you look at the spreads (costs) for each trade, you’ll see that trading the normal EUR/USD results in a 2 pip spread, while trading the EUR/NZD is a 7 pip spread. So it’s slightly more expensive.

However, you pick up 94 more pips in profit potential! In other words you’re paying 5 pips more for an incredible 94 pips worth of profit. I’ll take that any day.

The EUR/NZD has sufficient volume and reasonable spreads just like the traditional EUR/USD pair, but it trades 71% more pips daily. That gives you 71% extra profit potential every single trading day.

Three Reasons to “Upgrade” Your Trading Account

To recap, currency crosses can…

1. Resurrect the volatility that was easy to find just a few years ago
2. Give you 71% more profit potential or more on each trade
3. Finally offer you reasonable spreads.

Yes, traditional FX may be dying. But that doesn’t mean you have to close up shop and cancel your FX account. On the contrary there are plenty of opportunities out there for traders who are willing to adapt to what the market is offering.

In this day and age, that real opportunity is outside the U.S. dollar. Enjoy it while it lasts.

Happy Trading!
Sean Hyman, aka Professor FX

A 17-year veteran in the financial markets, Sean Hyman has been a senior writer for FX University Daily since 2007, and a currency trader since 2001. To hear more on how currency crosses can enhance your trades, read Sean’s latest special report here.

How Short-Term Traders Are Thrown a "Curve Ball”

2009-11-19T11:59:50-05:00

Click here for video

The Currencies of the Future

2009-11-18T14:25:25-05:00

Could These Elite Currencies Replace the Dollar?

A few years back, I went to college here in the U.S., but I would still fly home every summer to spend some time with my family in Brazil.

I always saved all the cash from my school job to cover my expenses during the summer. But luckily, I didn’t have to worry about saving too much. After all, back then a dollar would stretch pretty far in Brazil.

I remember going home and thinking how everything was so cheap for me. In the summer of 2003 for example, one dollar was worth almost three times more than the Brazilian real. So essentially everything was three times cheaper for me, because I was paying my real denominated expenses with dollars I earned during the school year.

I remember how every time I went out with my friends they always wanted me to pick up the tab. They would always say, “Evaldo should pay because he gets paid in dollars.”

But last time I went home, a couple of years ago, my dollars didn’t buy quite as much. Nothing seemed as cheap as before. And my friends no longer thought getting paid in dollars was such a big deal. At that time, one dollar could buy less than 2 Brazilian reais.

The Best Performing Currency of the Year

My story is pretty common. After all, the dollar steadily declined against the real for the better part of this decade.

In fact, the collapse of the housing market in the U.S. was the only thing that interrupted that long-term appreciation, as you can see on the chart below. Then of course, the dollar continued dropping again.

Last year the real depreciated more than 60% against the dollar. But the currency has already recovered most of its losses. In fact, the Brazilian real has been the best performing currency this year. The currency is now approaching pre-crisis levels.

Source: Bloomberg

Although we might see some blips and occasional dollar rallies, the long-term trend is clear. And the Brazilian real won’t be the only emerging market currency that will continue to appreciate against the dollar in the long run.

Looking At the Broader Picture…. Will History Repeat Itself?

Few people realize that we’re living through a major shift in the global economy. What we’re experiencing today is the sort of development our grandkids will be studying in their history books.

I remember learning from history classes that the U.K. was the largest economy in the world up until 1872, when the U.S. took over. Then 85 years later, the dollar replaced the British pound as the world’s reserve currency.

So I wonder if our future generations will be studying a similar shift of power in history books. China will soon replace the U.S. as the largest economy. And maybe this time it won’t take as many as 85 years for the dollar to lose its world’s reserve currency status.

We’re already seeing Central Banks around the globe diversifying away from the dollar. They are essentially planting the seeds of a new monetary system, where the dollar will no longer be the only currency reigning around the globe.

When Will the Dollar
Really Come Apart?

Western economies, especially those drowning in debt like the U.S., European Union countries and the U.K., will continue to lose economic power in the global scenario. They will have to address their skyrocketing debt levels. And that will imply lower growth rates going forward.

For the past decade, emerging markets’ contribution to global growth has already been increasing. And last year’s crisis will only accelerate this shift of power from West to East. Currencies from most emerging markets will appreciate on the back of a stronger domestic economy and weak dollar fundamentals.

Bottom line: The Brazilian real is just the first in a long line of emerging market currencies set to outpace the dollar. Stay long the emerging markets, and short the dollar long-term.

Best Regards,
Evaldo Albuquerque

Evaldo Albuquerque is a Head Researcher for World Currency Watch and co-editor of Exotic FX Alert. To learn more about how the dollar’s days as our world reserve currency are numbered, read our special report here.

When Everyone Sees a Bottom, It’s Usually NOT a Bottom…

2009-11-18T14:03:54-05:00

Click here for video

This Currency Pair Is Not Acting As It “Should Be”

2009-11-17T13:53:51-05:00

Click here for video

What to Do When the Entire World Is Bearish on the Buck

2009-11-16T16:25:02-05:00

I find it interesting (and a bit disturbing) that once again the dollar’s decline is on everyone’s radar.

“Investors at all levels, from retail investors to central banks, are really diversifying their portfolios,” Bloomberg reported this morning.

In other words, everyone from central bankers down to Mom and Pop investors are dumping dollars and buying gold and other currencies instead.

You’ll hear similar stories on CNN, CNBC, and MSN Money. Everyone is talking about gold’s record jump overnight to $1,133, silver’s leap above $18 and how the dollar fell to a 15-month low last week.

Here’s what they won’t tell you: The falling dollar isn’t really breaking news.

In fact, the dollar has been sinking for the better part of the last century (since the Federal Reserve was created in 1913 if you want to get technical).

A bit more recent: The dollar has been in a serious freefall for the past decade – dropping an astounding 37% just since 2001. And that’s INCLUDING the dollar rally that began in July 2008 and lasted until March.

The only difference now? With gold and silver soaring to new highs, the record Treasury issuance, and the Fed continuing to print dollars at an unprecedented rate, even the average American waltzing down Main Street is starting to notice the dollar’s decline.

More importantly, they’re looking for places to hide. (More on that in a moment…)…

Still a Cause for Concern on the Dollar

Now should you be concerned about all this negative dollar publicity? Absolutely.

It means that more U.S.-based investors are finally catching on that the dollar is heading for its ultimate demise. It also means that fewer countries around the world want to hold dollars in their long-term reserves.

That’s bad news for anyone who has their retirement plan, savings account, stock portfolio or other assets denominated in dollars.

Just last week, my colleague Ashish Advani told you how several countries around the world have been diversifying their holdings.

The Reserve Bank of India just bought $6.7 billion dollars worth of gold for their reserves. That was the largest open purchase of gold bullion in 30 years. To make matters even more desperate, they paid for their gold in Special Drawing Rights (SDRs), an artificial mix of the dollar, euro, yen and pound, instead of just dollars – another huge slight to the dollar.

Meanwhile, leaders from the rest of the BRIC nations have been uniting to ask for a new World Reserve Currency. They’ve been bashing the U.S. for our massive debts and our floundering currency all year. Just last week, the Chinese Premier Wen Jiabao publicly announced the dollar’s shortcomings at a news conference in Egypt….

“I hope that as the largest economy in the world and an issuing country of a major reserve currency, the United States will effectively discharge its responsibilities. Most importantly, we hope the United States will keep an appropriate size to its deficit so that there will be basic stability in the exchange rate.”

In other words, he’s calling the U.S. out for our $12 trillion in debt, sinking world reserve currency and record budget deficits that Chuck Butler told you about last week.

And all this negative publicity couldn’t have come at a worse time. The Federal Reserve has to continue to print extra cash to stimulate the entire economy. The Fed is also responsible for buying up whatever Treasuries don’t sell – that means more trips to the printing presses for more new dollars.

With All This Negative Dollar Publicity, Is
Now a Good Time to Sell Dollars?

Now for the important questions: What do you do about all this bad news for the dollar? Where can you possibly hide when everyone is dumping U.S. dollars?

Well, I can tell you a bunch of readers have been asking recently if now is the best time to start diversifying your dollar holdings.

After all, with all this negative dollar publicity, we could very well see a short-term dollar rally coming at the beginning of 2010 as the dollar becomes too oversold and traders start to take profits.

Now is such a dollar rally possible? Absolutely. Especially when everyone and their mother wants to be short the dollar, a contrarian rally could well be in the cards.

But if you’re a long-term investor, honestly it shouldn’t matter.

Long-term the dollar is still declining. In just the past decade the dollar’s long-term trend has been down, regardless of the few short-term rallies we’ve seen.

Also, in just the past decade, the U.S. dollar has lost 21% of its purchasing power. So regardless if the dollar has a nice short-term blip in the FX market, you’re still paying more for everything you buy.

Any short-term rally in the dollar is just an opportunity to buy up more gold and key foreign currencies at slightly cheaper levels.

Bottom line: Long-term the dollar will only continue its decline. Take advantage of any short-term rallies to cash out of dollars and add to your long-term “anti-dollar” holdings.

Good Currency Investing,
Kat Von Rohr, Editor
FX University Daily

P.S. This February 25 – 27, my colleagues and I will all be in Scottsdale, Arizona for our next FX University. The goal of this event? To give you the tools you need to get out of the dollar now. Sign up now and we’ll even give you a $300 discount off the entry fee. Get all the details here.

A Beginner’s Strategy for Forex Newbies

2009-11-16T12:00:27-05:00

How to Start Trading Forex with a Small Account

Click here for video

Another Snub Against the Buck

2009-11-13T15:17:48-05:00

The Latest Way the World Is Dissing the Dollar and Why You Should Too

Woohoo! I wanted to stand on rooftops and scream in delight when I heard the latest news from India last week.

In case you missed it, the Reserve Bank of India decided to pass over the dollar and buy gold for their international reserves instead. Even better, India did NOT pay for their new gold in dollars either! (More on that in a moment…)

“Right On India!”

Finally a central bank has decided to stand up and announce to the world that they have had enough of the U.S. dollar. They’ve had their fill of the Fed running the global printing presses on high and flooding the market with dollars for the better part of two years now.

At last, they’ve said, “Enough already!”

By this bold and very public action, the RBI has decided to put their money where their mouth is, not unlike several other international dollar critics this year…

Talk Is Cheap, Unless It Helps Devalue the Dollar

Now, the Reserve Bank of India may be one of the few central banks to publicly dis the dollar this year. But the world’s leaders have been doing that more and more lately.

Here’s a quick recap of what’s been happening this year…

In March, China’s central bank head Zhou Xiaochuan posted an essay on the web that displayed his discontent with the world’s reserve currency. “An international reserve currency should not be tied to the interests and economic conditions of any one country.”
In July, Russian President Dmitry Medvedev pulled out a sample coin for the new “united future world currency” from his pocket at the G-8 meeting, to show his support for a new reserve currency.
In September, the UN wrote a report that called to replace the U.S. dollar with an artificial currency in global trading. They wrote, “Replacing the dollar with an artificial currency would solve some of the problems related to the potential of countries running large deficits and would help stability.”
Just this week, World Bank President, Robert Zoellick said that with China’s growth trend, the Chinese yuan could develop as an alternative to the U.S. dollar as a global reserve currency in 15 years.

All these comments have helped push the dollar lower this year on various occasions.

Now it’s India’s turn to make a public announcement against the dollar.

Up until now, the India’s government has only been somewhat critical of the U.S. dollar. Then last week, India’s central bank decided to take this public step of announcing its purchase of gold for its reserve.

But the story does not end here folks. Its gets much more interesting…

The Plot Against the Dollar Thickens

The RBI decided to buy the block of gold (200 Tons) from the International Monetary Fund (IMF). Now I could write an entire article on how crazy and short-sighted the IMF is for selling gold right now. But let’s stay focused on the story at hand…

When the IMF put this gold up for sale, the RBI were the first to raise their hands to buy. And they grabbed plenty.

But here’s where it gets interesting… The RBI did NOT pay for this gold with U.S. dollars, which is traditionally how gold is priced. Instead, the RBI decided to pay for the gold in SDRs.

For those who are new to the class, let me explain what a SDR is. SDR stands for Special Drawing Rights. It’s an artificial currency that the IMF created to transact its business. When the IMF lends money or gets paid back, the IMF guys do the math in SDR’s. And the SDR is a basket of currency.

It’s technically a basket of currencies that changes every five years. Here is the current composition of the SDR, which changes every five years.

Pretty dramatic snub against the dollar huh?

Now in practice, using SDRs to purchase gold doesn’t have that large a consequence. But it’s what this purchase means to the world that is more important.

What Paying in SDRs Really Means

Gold has been traditionally priced for international trade in U.S. dollars. Just like oil. Each country converts the price to local currency for local trade. But the bulk purchase of gold sales is always denominated in U.S. dollars. The U.S. has a nice monopoly on international trade-in that way.

But by paying in SDR, the RBI made the first foray in breaking that mold. The SDR is only 44% U.S. dollars. This is the first time such a large government purchase is made in non-USD terms.

What’s next? China buying Oil from Brazil in non-U.S. dollar prices?

Wait! That has already been done. If you remember we had mentioned that in several of our reports that China has negotiated a non-U.S. dollar bi-lateral trade line with several countries including Brazil.

So, China is buying oil and other commodities from various countries in non-U.S. dollar terms. Now India is buying gold from the IMF in non-U.S. dollar terms. It could follow that soon enough no one will want to trade anything in U.S. dollars.

When that happens, soon after that no one will want the U.S. dollar anymore!

Don’t Believe the Dolts When They Say This is GOOD for the Dollar!

I love it when my favorite dolts (I lovingly refer to the herd minded FX Traders as dolts) try to spin this story in positive light. They have mentioned that RBI has actually helped the U.S. dollar by not buying gold in dollars.

WHAT!!

They claim the RBI is actually making a statement here. According to the dolts, “The RBI believes the U.S. dollar is no better or worse than other paper currencies…and the RBI thinks the dollar will decline, so they’re saving their dollars for a rainy day.”

Yeah right. Sure, you go ahead and believe that dolts.

Now, if the RBI had a mandate to be a currency trader and profit off the short-side of the dollar, then I may (mind you I still say “may’) give their views a bit more authority. But come on!

Central banks do NOT have to make money trading currencies. Their mandate is to control inflation, encourage growth and safeguard the nation’s reserves. And right now, that means dumping the dollar. Period.

Clearly this is NOT a vote of confidence in the dollar. It’s the exact opposite. The world’s leaders are shooting warning arrows across the U.S. dollar’s bows, but the dolts are too thick to realize it.

In my mind, I’m celebrating because my home country is acting so prudently with their reserves. But for everyone else, this is BAD news for the dollar.

Bottom line: Stay strong India, and short the dollar my friends!

Yours in FX Profits,
Ashish Advani

P.S. For these reasons and plenty of others, all my currency colleagues and I are urging readers to store some long-term wealth outside of the U.S. dollar as soon as possible. To learn more about how to do that, read my buddy Chuck’s report here.

Three Winners with the Same Cross

2009-11-13T11:53:58-05:00

Why You Should Be Trading This Gem

Click here for video

Predictability of Range Trading

2009-11-12T16:35:20-05:00

World Currency Watch: FOREX Market, FOREX Trading BLOG

Why Traditional Forex Trading Is Dead and Has Been for 17 Years!

Kiss FX Trading Goodbye As You Know It

You Won’t Find “Crisis Volatility” Anymore

Time to Swim in a Smaller, More Volatile Pond

Jumpstart Your Trades by 71% or More by NOT Trading the Dollar!

Three Reasons to “Upgrade” Your Trading Account

How Short-Term Traders Are Thrown a "Curve Ball”

Click here for video

The Currencies of the Future

Could These Elite Currencies Replace the Dollar?

The Best Performing Currency of the Year

Looking At the Broader Picture…. Will History Repeat Itself?

When Everyone Sees a Bottom, It’s Usually NOT a Bottom…

Click here for video

This Currency Pair Is Not Acting As It “Should Be”

Click here for video

What to Do When the Entire World Is Bearish on the Buck

Still a Cause for Concern on the Dollar

With All This Negative Dollar Publicity, Is Now a Good Time to Sell Dollars?

A Beginner’s Strategy for Forex Newbies

How to Start Trading Forex with a Small Account

Click here for video

Another Snub Against the Buck

The Latest Way the World Is Dissing the Dollar and Why You Should Too

Talk Is Cheap, Unless It Helps Devalue the Dollar

The Plot Against the Dollar Thickens

What Paying in SDRs Really Means

Don’t Believe the Dolts When They Say This is GOOD for the Dollar!

Three Winners with the Same Cross

Why You Should Be Trading This Gem

Click here for video

Predictability of Range Trading

Click here for video

With All This Negative Dollar Publicity, Is
Now a Good Time to Sell Dollars?