Currency futures

I've been waiting for WhiteDesire, the Forum's hot-shot forex trader, to let us know about the following article from this week's Economist but I fear it contains too many long words for him.
The full article link - http://www.economist.com/finance/displa ... d=11667810 :

Many currencies that are backed by a current-account deficit are now falling just as the dollar has



ACCORDING to economic textbooks, the currencies of economies with large current-account deficits should depreciate relative to those of countries with surpluses. This will stimulate their exports and curb imports, thereby helping to slim the trade gaps. America has the worldтАЩs biggest current-account deficit and the dollar has dutifully been falling since 2002. Oddly, however, the currencies of many other countries with large deficits had enjoyed big gains until recently. Now, at last, currency markets have started to see sense.

Britain, Australia, New Zealand and Iceland all have large current-account deficits (along with many other American-style excesses, such as housing and credit booms). Yet over several years until mid-2007, their currencies perversely rose relative to those of economies, such as Japan and Switzerland, with big surpluses. For example, despite a current-account surplus of 4.9% of GDP last year, one of the biggest of any developed economy, JapanтАЩs trade-weighted exchange rate sank by 13% from the end of 2002 to mid-2007. New Zealand, where the deficit reached 8% of GDP (bigger than AmericaтАЩs deficit of 6% of GDP at its peak), saw its currency gain 28% over the same period.

This paradox is the result of the тАЬcarry tradeтАЭ, a popular currency strategy that partly explains why trade flows are now dwarfed by cross-border capital flows. In a world of low interest rates, international investors were hungry for yield, and so piled into currencies that offered higher interest rates, namely those of Britain, Australia, New Zealand and Iceland, as well as many emerging markets. Those higher interest rates paid by countries with large external deficits were supposed to compensate investors for the risk of currency depreciation. But as investors borrowed in low-interest currencies, such as the yen, to invest in high-yielding ones, this made the latter currencies stronger. That, in turn, prolonged global imbalances by making it easier for profligate countries to finance their current-account deficits.

But since the eruption of global financial turmoil last year and the dwindling appetite for risk, carry trades have started to unwind and it has become harder to finance deficits. As a result, current-account imbalances are once again exerting a powerful influence over currencies. The chart shows that the weakest currencies this year have been in countries with deficits, from Britain to South Africa. In contrast, the yen and the Swiss franc have perked up. The same chart a year or so ago would have shown virtually the opposite relationship.

Its my personal opinion that futures trading of any kind is immoral.

But offing a boy's okay?

Thats debatable, but we were discussing futures trading. Perhaps someone will come us with barboy futures for you...

I'm sorry - I thought you had changed the topic and we were discussing morality

.... so much in fact that you cut and pasted the article ....

You're a typical dittohead

Its my personal opinion that futures trading of any kind is immoral.

Actually futures trading provides a valuable service to society.

Example: Tourist books cheap plane ticket for a flight in 3 months from Ryan Air.
Oil price goes up by 50% during this 3 months, but as Ryan Air have hedged their oil price, the Tourist can pay the originally agreed price & Ryan Air can pass the risk onto someone else (therefore staying in business).

Futures trading is effectively a form of insurance that allows the risk to be passed onto another party who is prepared to take that risk.

That's not a service to society, that's a service to Michael Ryan.

[cottmann]

Its my personal opinion that futures trading of any kind is immoral.

But offing a boy's okay?

тАЬMorality is the thing upon which your friends smile, and immorality is the thing upon which they frownтАЭ
Elbert Hubbard (American editor, publisher and writer, 1856-1915)

[Khor tose]

Homi I read the article. I really think the economist is being to general. Australia's deficet is because of expanded development. A part of America's deficit is because of the large amount of money we spend on R&D (drugs etc). Industry and government will soon be expanding into alternate energy research (once we get rid of our oil president) and spending even more money. Both deficets have potential to become big pluses. In the short term you may suffer a slight decline in value, but most of the money traders seem to know where the real future will be, and who is preparing well for it. In this case, I would say "not to worry".

Personally, I think currency trends are far too unpredictable for a long term approach. Almost all of the successful traders I know take very short-term positions -- from a matter of minutes to a matter of a few days or weeks maximum.

The short term traders all combine to allow companies to secure future oil prices so they can offer stable forward prices to customers.

IMHO selling a plane ticket then adding a fuel surcharge is immoral. The good airlines engage in fuel cost hedging to avoid this.

Like most open markets, futures trading a damn good idea.

Anyway, be under no illusions the main reasons for high oil prices are countries like the US immorally burning excessive quantities per capita for years & years and secondly countries like China (quite reasonably) improving their living standards.

Start by ditching those SUVs.