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Where does the money come from?

  • #21
  • Sep 20, 2005 8:01pm Sep 20, 2005 8:01pm
Quoting SoyYoConBonete
I don't think this is true. If by "hedgers" we are talking about people involved in importing/exporting who are looking to reduce their exchange risk, then it's impossible for them to account for 80% of the market, simply because daily world trade is nowhere near 1.5 trillion dollars...

...So probably 90% of the market is made of speculators. Maybe it's the famous 90% that lose money ?
so if i understand your point correctly, you are saying that daily world trade is nowhere near 1.5 trillion dollars, yet it is possible that forex speculators are doing 1.5 trillion? no way!

forex is a hedgers market for sure. i just scoured a few of my books to find where i know this from. cant find it right now. anybody know a resource that gives a breakdown of forex volume?
Relax and be happy.
  • #22
  • Sep 21, 2005 7:21am Sep 21, 2005 7:21am
Quoting merlin
so if i understand your point correctly, you are saying that daily world trade is nowhere near 1.5 trillion dollars, yet it is possible that forex speculators are doing 1.5 trillion? no way!

forex is a hedgers market for sure. i just scoured a few of my books to find where i know this from. cant find it right now. anybody know a resource that gives a breakdown of forex volume?
Hi merlin,
Just checked the WTO data, total world trade in 2003 was about 9 trillion. That gives 36 billion dollars a day. And that's 2.5% of the 1.5 trillion dollars traded every day

When you say "hedgers", do you also mean import/export firms?

Best regards,
Bonete
  • #23
  • Sep 30, 2005 5:49am Sep 30, 2005 5:49am
Quoting SoyYoConBonete
Hi merlin,
Just checked the WTO data, total world trade in 2003 was about 9 trillion. That gives 36 billion dollars a day. And that's 2.5% of the 1.5 trillion dollars traded every day

When you say "hedgers", do you also mean import/export firms?

Best regards,
Bonete
yes, import/export firms are hedgers.

i understand your point that it is only 2.5% of the 1.5 trillion dollars. my counterpoint is that there is no way that speculators are doing more volume than the total world trade! so there has to be some measurement mistake being made in that logic.

all the smart people on here and noone has a graph of forex volume? we need to settle this one
Relax and be happy.
  • #24
  • Edited 1:48pm Sep 30, 2005 1:28pm | Edited 1:48pm
Quoting SoyYoConBonete
I don't think this is true. If by "hedgers" we are talking about people involved in importing/exporting who are looking to reduce their exchange risk, then it's impossible for them to account for 80% of the market, simply because daily world trade is nowhere near 1.5 trillion dollars.

According to the book "The Winner's Curse" (a fantastic book, did anyone read it?), forex world trading was 500 billion dollars a day (at the time it was published), while international trade of goods and services was about 10/12 billion a day.
International trade is huge, real huge. We are talking about $1500 billion of currency exchanges per day. These exchanges or trades are repetitive to some extent. I am long today, I close my position tomorrow and I open another position with the same amount of money the next day. I am participating 3 times with the same amount of money in the everyday volume of $1500 billion. It would have been a different story if the $1500 billions are different money everyday, the sum would have much more larger than we can imagne.

In the case of the international trade, the 10/12 billion per day figure is not repetitive, which means that I sold goods worth a part of those 10/12 billions, but I don't sell them tomorrow. Tomorrow 10/12 billions are completely new goods, and hence new amounts of money from other companies and between different parties. The repetions, or the common traders are so small in the 10/12 billion daily volume, while they are so large in the $1500 billions of the forex market.

This makes the international trade much larger than you might expect. Extremely large actually.

The numbers are just missleading to favor that the forex volume is larger than the international trade. No, this is not the case. The forex market as well as the commodity markets were made for hedgers in the first place. Doesn't mean that speculators entered, that they will override the role of the big guys. At all.

Quoting SoyYoConBonete
edit: By the way, there's another interesting (off-topic) fact mentioned in this book: most research papers find no correlation between currency movements and interest rate differentials, not even in the long run.
This is just pure Academia. Have nothing to do with interest rates differentials, you must be kidding me. Why are all those charts confronting to interest rates changes then??

Thanks,

Nader
  • #25
  • Sep 30, 2005 1:45pm Sep 30, 2005 1:45pm
Quoting SoyYoConBonete
Hi merlin,
Just checked the WTO data, total world trade in 2003 was about 9 trillion. That gives 36 billion dollars a day. And that's 2.5% of the 1.5 trillion dollars traded every day

When you say "hedgers", do you also mean import/export firms?

Best regards,
Bonete
Actually no body except import/export firms hedge currencies. Maybe some tourism companies here and there, but 90% of the hedgers, I believe are import/export firms.

Thanks,

Nader
  • #26
  • Oct 2, 2005 2:10am Oct 2, 2005 2:10am
Quoting narafa
Actually no body except import/export firms hedge currencies. Maybe some tourism companies here and there, but 90% of the hedgers, I believe are import/export firms.
are you considering global corporations are import/export firms? because companies like GE, that make products all over the world, make up a large portion of hedgers.
Relax and be happy.
  • #27
  • Oct 2, 2005 4:19am Oct 2, 2005 4:19am
Quoting merlin
so if i understand your point correctly, you are saying that daily world trade is nowhere near 1.5 trillion dollars, yet it is possible that forex speculators are doing 1.5 trillion? no way!

forex is a hedgers market for sure. i just scoured a few of my books to find where i know this from. cant find it right now. anybody know a resource that gives a breakdown of forex volume?
http://www.bis.org/statistics/bankstats.htm

You may find this useful.

FT
  • #28
  • Oct 2, 2005 5:41am Oct 2, 2005 5:41am
Quoting merlin
are you considering global corporations are import/export firms? because companies like GE, that make products all over the world, make up a large portion of hedgers.
Any corporation that is involved directly or indirectly in an international trade action or deal is considered into the game of forex. Since they are called Multi-National companies, they must be doing business in many different countries, so they must have different positions of different currencies, so they are for sure engaged in the game.

GE, oh man, this is too complicated, I wonder how a company like GE manage to choose and time their currency hedging positions??!! They must have the most brilliant money managers & Risk control mangers in the world. When I even think of it, I feel sick They must have huge matrices to calculate the best actions to be taken for the least possible risk against their business units, taking into consideration hundreds of other assumptions and probabilities, this is completely beyond my small and limited imagination for sure.

Thanks,

Nader
  • #29
  • Oct 2, 2005 11:13am Oct 2, 2005 11:13am
Quoting narafa
Any corporation that is involved directly or indirectly in an international trade action or deal is considered into the game of forex. Since they are called Multi-National companies, they must be doing business in many different countries, so they must have different positions of different currencies, so they are for sure engaged in the game.

GE, oh man, this is too complicated, I wonder how a company like GE manage to choose and time their currency hedging positions??!! They must have the most brilliant money managers & Risk control mangers in the world. When I even think of it, I feel sick They must have huge matrices to calculate the best actions to be taken for the least possible risk against their business units, taking into consideration hundreds of other assumptions and probabilities, this is completely beyond my small and limited imagination for sure.

Thanks,

Nader
I think you are giving way too much credit to corporations. When I worked for corporate America, I was quite surprised to find out that all too often noone was waching the store.
Steven
  • #30
  • Oct 2, 2005 12:06pm Oct 2, 2005 12:06pm
Where does the money come from? good question.

I belive one part of it is when(for example) Honda needs to purchase parts for there cars they get them from Japan. So they have to change USD over to JPY in order to pay for the product. This has to be done reguardless of the value of either currancy. That applies to anything we buy in mass quantity from other countries. So that moves the market too. Not just traders.

I could have that all wrong but that is my understanding of it.

Dave
  • #31
  • Oct 2, 2005 4:37pm Oct 2, 2005 4:37pm
Quoting fijitrader
http://www.bis.org/statistics/bankstats.htm

You may find this useful.

FT
i must be missing it fiji cause i cant find any breakdown of volume. did you see that on this site?
Relax and be happy.
  • #32
  • Oct 2, 2005 5:32pm Oct 2, 2005 5:32pm
Quoting scpeter
I think you are giving way too much credit to corporations. When I worked for corporate America, I was quite surprised to find out that all too often noone was waching the store.
I would be really surprised if this is the case. Why do they hire all those MBAs, CFAs then???

Thanks,

Nader
  • #33
  • Edited 11:20am Jan 23, 2007 11:01am | Edited 11:20am
Quoting ivenger
Does it really matter who placed the trades?
The fact is that the money you gained has been transfered to you from someone else's pocket.
I stopped trading a month ago due to that. I dont know who is on the other side and I don't want to harm anybody. I didnt solved this problem yet. Any comments welcome.
Quidquid latine dictum sit altum viditur
  • #34
  • Jan 23, 2007 11:16am Jan 23, 2007 11:16am
Quoting narafa

GE, oh man, this is too complicated, I wonder how a company like GE manage to choose and time their currency hedging positions??!! They must have the most brilliant money managers & Risk control mangers in the world. When I even think of it, I feel sick They must have huge matrices to calculate the best actions to be taken for the least possible risk against their business units, taking into consideration hundreds of other assumptions and probabilities, this is completely beyond my small and limited imagination for sure.
I believe thats simple - planning unit at a headquarter sets a yearly goal for a country X in USD and 'financial dept" or whatever sets a rigid level of exchange for the whole year (thats "internal rate of exchange") - and they hedge USD against X in order to maintain consistency with their plan (plan=number of units sold multiplied by prices). I hope you understand my English.
Quidquid latine dictum sit altum viditur
  • #35
  • Jan 23, 2007 11:22am Jan 23, 2007 11:22am
This is a NEGATIVE SUM GAME, and anybody who tells you it's a zero sum game, doesn't know math, or doesn't know how to read a bid/ask chart!!

Money comes from tree pulp.. I learned that in 3rd grade..
google:
  • #36
  • Jan 23, 2007 9:31pm Jan 23, 2007 9:31pm
Money is made in this market by being able to predict the market; and I certianly don't mean with tech indicators. People loose so much money in FOREX because they look at things technically, when its all phsycology. You can create all the formulas you like, but you have to take this market one day at a time. Things are always changing and a successful investor is one that can stay ahead of the curve.
I am Canadian!
  • #37
  • Jan 23, 2007 11:47pm Jan 23, 2007 11:47pm
People tend to overestimate the profits of big Forex speculators. In fact those gains are relatively small. Very few fund managers exceed 10-15% of average annual return while majority of them still lose the money. Check out their ratings, reports and track records to see it yourself. The biggest part of the profits goes to service providers like banks, dealers and brokers who just execute the orders on behalf of their clients. The sophistication of hedge fund traders and managers is also routinely overestimated. The average trader’s career lasts about 5 years. After this period people either change their jobs or get promoted to higher positions not directly related to making trading decisions. It appears pretty much that kids are playing the market. Most of them have no idea what they are doing and make stupid and otherwise unreasonable decisions, what however leads to changes in trading prices and market exchange rates.
  • #38
  • Jan 24, 2007 12:25am Jan 24, 2007 12:25am
Quoting dottore
I stopped trading a month ago due to that. I dont know who is on the other side and I don't want to harm anybody. I didnt solved this problem yet. Any comments welcome.
I appreciate your desire to not hurt anyone. It is a noble idea. But I must respectfully disagree that it necessarily hurts someone by participating in FOREX trading.

It is NOT a zero-sum-game, and I have no idea where folks get this idea. There is not some fixed pie of resources that you can only get a slice of by cutting into someone else's slice. Everyone who has taken basic Econ understands that a contry's central banks and their member banks are constantly expanding their money supply by fiat (out of thin air) as need be. Upon rare occasions, they may even contract their money supply, but that is very rare.

This is largely controlled through fractional reserve banking, a mechanism that creates and destroys money every day as a normal part of any comercial bank doing business.

How can an elastic money supply be viewed as a fixed pie, or a zero-sum-game? It is impossible.

Now, if you want to understand how trading itself is inherently moral, I'll blab about that on request. But meanwhile, understand, you are hurting no one. In fact, you are actually helping by performing a few valuable services. Please get back into the game. Let's trade.

Thoughts, anyone?
  • #39
  • Jan 24, 2007 12:36am Jan 24, 2007 12:36am
I'd be interested in hearing your thoughts on how trading is moral.
someone i was talking to mentioned something about share trading and how it doesn't suit his morals because it is mainly helping the rich get richer and the poor get poorer...

in regards to where does the moeny come from .. well in actual fact it comes from the pot at the end of the rainbow..... (i thought everyone knew that !

i don't think forex is a zero sum game because of the spread, etc. like when you exchange money to go overseas the spread is hughe, compared to the spreads for trading (i think...) so obviously these money exchanges are making money.

also the fact that governments can print money doesn't make it a zero sum game.... just my 2 pips
  • #40
  • Edited 12:49am Jan 24, 2007 12:48am | Edited 12:49am
Quoting anthonyrae
also the fact that governments can print money doesn't make it a zero sum game.... just my 2 pips
Tony,
Thanks for saying in one sentence what it took me 3 paragraphs to bellow out. I'll get back to you on the morality thing.
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