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Volatile currency markets presenting opportunities for local forex traders

27 March 2012 Knowledge to Action

– While the ongoing uncertainty and volatility in the US and Eurozone continues to present challenges for market investors, this environment is proving conducive for skilled foreign currency traders. This is according to Iain Giffen, Consulting Trader

“Europe has had a series of economic challenges of late, particularly affecting Italy, Spain and Greece, while the US continues to have its fair share of problems, particularly around its debt levels."

Giffen explains that these crises have led to a huge flow of capital from assets and economies that are perceived as risky to environments perceived as a ‘safe haven’. “This is resulting in the establishment of major trends across multiple currency pairs and the currency volatility has attracted an increasing volume of forex trading.”

According to a quarterly report by the Bank for International Settlements (BIS), a Switzerland-based banker to central banks, by October 2011, daily trading turnover in global foreign-exchange markets reached almost $4.7 trillion and has continued at very high levels.

“The amount of capital invested in the forex markets each day means there is plenty of money to be made for all types of investor,” Giffen says. “It also means that the cost of trading forex is extremely low compared to any other trading activity.”

He says that currency volatility is expected to continue as the economic future of Italy and Spain remains uncertain, and the majority of the world’s economies are already at a level where a double-dip recession is a possibility. “The South African economy has certainly been exposed to these forces, particularly as South Africa’s main trading partner is Europe. Risk issues affecting them will naturally impact the Rand.”

Giffen explains that forex markets are influenced by international trade and investment flows, and by economic and political conditions. “The myriad factors interacting with each other result in currency price values constantly fluctuating, which creates numerous trading opportunities.”

However, Giffen says that because the forex market moves more than any other market per day and most trading is leveraged, traders need to be aware of the risks involved. “Currency traders need to be highly risk conscious as high volatility means that the price of a currency can change suddenly and dramatically.”

He says that by employing a proven approach in a disciplined manner, it is possible to minimise risks while maximising returns. “Without proper education the risk of losing a significant amount of money is high, so a properly constructed and disciplined approach to the market is an absolute requirement for anyone to be consistently profitable without risking their capital, rather than simply guessing where the market will go next.

“The foundation of success for any profitable trader is most easily built via quality training and coaching programmes, which employ a disciplined approach combined with strict money management strategies. This keeps losses small while allowing successful trades to run, and allows for consistent income and capital growth to be generated from the markets,” he concludes.

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