DOLLAR DROP! Currencies and the Carry-Trade

With all the attention the dollar is gaining on its fall vs. the Euro and Yen (etc) and economists and politicians explanations... There is one thing everyone is forgeting. Shorting the DOLLAR makes money right now..

When the Forex Market trades daily (about 4 trillion or more exchanges hands) there is so much liquidity that commission aren't even charged. (see if your Stock broker can beat that) Money is made at these houses in the spread between the bid and ask. Moving in Pica's (.001) the markets have the largest and heaviest players involved. Being the largest market in the world, currency markets usually can react in a moments notice to events around the world. (don't exclude Globex though!)

So if I take a currency pair to trade, I usually purchase the first currency and basically sell the second currency (simoultaneously). In doing so I can recieve interest in the long position and get debbited the short position. Since the Dollar has some of the lowest rates going, its a natural the dollar is going to drop in value. And the carry trade will net + (the interest gained) becouse the long currency might generally pay a higher rate then what is debited. I will so no more and hope that this clearifies FOREX market function behavior. You can come up with your own assumptions.

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Anonymous said…
This seems like a great article thanks