Forex Risks
Forex Risks In A Floating Market
The major problem of a freely floating exchange rates market is that markets themselves are not perfect. One of the worst aspects is that nobody knows the future and if there is an unexpected piece of news about a country, such as a vast amount of oil is discovered or a government suddenly falls and is likely to be replaced by one which has a very different financial, tax or monetary policy, then everybody will suddenly wake up and say ‘hey, this is a country whose currency we must buy a lot of’ or ‘this is now really unsafe, we must get out’.
Unfortunately the swings in exchange rates can be absolutely enormous, you can see a currency go up or down by one, two, three percent maybe in a day, as an attitude towards certain news. Many people who are operating in foreign exchange markets don’t tend to think so much about the long run and what the currency really ought to be worth in order for its goods to be priced at the right level in foreign markets and so on.
Some unscrupulous exchange operators are trying to guess very short-term trends and they are also trying to guess the actions of other traders. They tend to say, ‘oh, let’s see, if something is going up today it will probably go up tomorrow’. They just go in one direction and you often get huge exchange rate swings, going on for maybe even years, certainly for weeks or months, which are pushing the currency away from what it really ought to be.
This traders’ behaviour is a source of worry and it’s undoubtedly happening and it’s due to the fact that people don’t have perfect information and often tend to say, ‘well, if he’s doing this, then he must know something I don’t, I would better copy him’ and that can be a recipe for a real trouble.
Forex Risks In A Floating Market
The major problem of a freely floating exchange rates market is that markets themselves are not perfect. One of the worst aspects is that nobody knows the future and if there is an unexpected piece of news about a country, such as a vast amount of oil is discovered or a government suddenly falls and is likely to be replaced by one which has a very different financial, tax or monetary policy, then everybody will suddenly wake up and say ‘hey, this is a country whose currency we must buy a lot of’ or ‘this is now really unsafe, we must get out’.
Unfortunately the swings in exchange rates can be absolutely enormous, you can see a currency go up or down by one, two, three percent maybe in a day, as an attitude towards certain news. Many people who are operating in foreign exchange markets don’t tend to think so much about the long run and what the currency really ought to be worth in order for its goods to be priced at the right level in foreign markets and so on.
Some unscrupulous exchange operators are trying to guess very short-term trends and they are also trying to guess the actions of other traders. They tend to say, ‘oh, let’s see, if something is going up today it will probably go up tomorrow’. They just go in one direction and you often get huge exchange rate swings, going on for maybe even years, certainly for weeks or months, which are pushing the currency away from what it really ought to be.
This traders’ behaviour is a source of worry and it’s undoubtedly happening and it’s due to the fact that people don’t have perfect information and often tend to say, ‘well, if he’s doing this, then he must know something I don’t, I would better copy him’ and that can be a recipe for a real trouble.