The forex market is one of the largest trading markets worldwide seeing traders from multinational corporations, large banks, central banks and governments. It is unique in the volume of trading, the hours of trading, the regions covered and the numbers of trader all affect the currency exchange rates which in turn affects the market’s movement. This is why an individual must keep their eye on various aspects of the forex market in order to be an effective trader.
The effect of forex news on currencies
It is not only forex news that affects currency price values. Political and socio-economic factors play a role in the fluctuations as well. This is one of the main reasons why there is no insider trading in this financial market and this is a huge advantage to traders. All that is required of a forex trader is to be aware of news events, base his/her opinion on that particular news, and use it to trade in the market. There are large trades that have been carried out by traders who live for the news and use it to carry out their trades.
There was speculation during the summer of 1992 that the United Kingdom was to be ejected from the European Monetary Union. This speculation had a massive impact on the British pound. A trader by the name of George Soros, the founder of a large hedge fund called The Quantum, took advantage of this news. He placed a 10 billion short position in the foreign exchange market that suddenly caused a swing in the value of the British pound. The Bank of England took it upon themselves to intervene in order to stabilise the currency. The pound took a nosedive on September 16th of that same year. Britain was forced to withdraw from the European Monetary Union and Mr. Soros earned a whopping one billion dollars in one day. This day is now known as ‘Black Wednesday’.
With news of the impending reunification of Germany, Stanley Druckenmiller decided that he would take advantage of this event. He bought 2 billion German marks as he speculated that the falling of the Berlin Wall would have a huge effect on the currency. The deutschemark rocketed in value over a few years. No-one knows exactly how much he made on this deal, but there is speculation that he made a net return of approximately 60% on the deal.
During the 1987 stock market crash traders made a decision to purchase any and all currencies that were improving against the US dollar. The most popular currency at the time was the New Zealand dollar. Andy Krieger did not think that the New Zealand currency could hold onto that position indefinitely, so he went short on 200 million Kiwi dollars. The currency was unable to survive under the building pressure and Krieger managed to make a massive profit.
One main factor links all the forex news stories mentioned. Each forex trader formed their own opinion of the market at the time based on economic data that was available. It is stated that it is impossible for any one trader to replicate this type of trading in today’s market due to the present market being regulated in various countries. However, a trader could replicate the basis of the trades.
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