Trade77; Everyone Looking For Profits In FX? 7pm


Hello Traders, I’m Mani and I’m the writer of Trade 77 section, please follow me on twitter for further updates.

A trader asked me this question: ” Anyone who participates in the forex market will look for a profit?” This looks really funny at the first glance but actually the answer to this question would be really informative in order to find out some fundamental concepts of the currency market.

I would like to know your answers, Have you ever thought about this question? Some groups of people will participate in this market and won’t look for a profit? Is it possible?

My answer to this question is a categorical “Yes”. There are two groups of people who will not care about profits or losses.

First group would be travellers, actually when you are changing a currency with another one you won’t care about if the base currency is going to strengthen or not, you won’t think about bulls or bears at all! The only important thing for you would be having the currency needed for your travel and expenses.

Second group is the most important and the largest market participants that they do not care about their positions in the market.
These traders are big companies that want to protect their interests against potentially damaging fluctuations in their native currency.
For example assume a company that exports some kind of material from Japan to USA, a weak Japanese yen here is a piece of gold for this exporter and if he wants to protect himself against the strengthening of the yen, this company might open a long position in yen futures, so any business losses due to a strong yen will be offset  by a gain in his position and vice versa.

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Regards

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  • Mike Donovan

    very good point and as newbie type traders we overlook this. Im sitting back thinking this is all good im making good money here. But today i squared up my trading books only to find if i was to bring my profits home USD TO NZD i will loose half them on the exchange rate as it has moved up 11cent from my original investment