Forex Spread Betting & Black Wednesday
FoREx advantagES Aside from leverage available with forex trading, there are many other advantages including the fact that they trade 24 hours per day, 5 ′ days per week and are extremely liquid. there is approximately $4 trillion traded daily around the world in the forex markets. Because of this liquidity, transaction costs, known as the ‘spread’ in spread betting, are very tight, especially on the major fx pairs. Sometimes spreads on the majors can come down to as little as a pip, and only a little bit more for some other markets. Forex markets, due to the aforementioned liquidity, tend to trend very well. There is also no insider trading in forex and due to their size they are not easily manipulated, except perhaps by central banks that often do their best to weaken their own respective currencies to reduce their debts and make them more competitive — a practice “Helicopter” Ben Bernanke is well versed in!
tRading oppoRtunitiES Recent examples of central bank interventions have come from the Bank of Japan, the ECB, the Bank of England, the U.S. Federal Reserve and more. These central banks intervene in the currency markets by reducing interest rates and through asset purchases such as Sovereign bonds, and which have the effect of increasing the money supply. By increasing the money supply, making more of a specific currency available, the value of the currency must, per economic theory, weaken. This process is known as debasing.
Perhaps the most sustained example of this in the past decade has been the U.S. dollar and the almost continuous intervention by the U.S. Federal Reserve to weaken their currency. The official policy of the U.S. government is a strong dollar policy, yeah right! Consider the weekly chart below of the dollar index which goes back just over a decade. The dollar index is the U.S. dollar against a basket of major currencies and is a very good indicator of the strength of the dollar.
US Dollar 10 year weekly chart
November 2012
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