Investing in a portfolio of currencies is different from currency trading. The success of currency trading comes, obviously, from being on the right side—either long or short—of one transaction. In a certain sense this is like successful stock-picking: you commit to one position; you hope that the equity you choose will, sooner or later, be valued at a higher rate when you decide to sell it; you expect that if you time your sale correctly other investors will be willing to buy the security, even at its appreciated price.
Currency investing is different. Compared to investing in stocks or bonds, its time horizons are greatly compressed (meaning that the effects of trading volume plus liquidity plus the perceived value of a currency can present greater opportunities for gain and loss in one day that you might expect on conventional equity and fixed income markets in one year).
The equality of gains and losses: conventional investing is based on the notion of one-sided ownership: you buy (go long)…you hold…you sell. Currency markets, in contrast, place equal value on selling (going short); this is reflected in the very nature of every currency transaction because you must buy and sell a pair: you cannot take a one-sided position. As a practical matter, this means that opportunities exist regardless of whether “the market” is rising, falling, or moving sideways…
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December 16th, 2008 | Investment, News | RSS feed