Interesting Question

Thought I would ask. But this morning my dad questioned me a little about FX, and i gave him a few answers. He then said to me how do I make money off the AUD? - We both live in Australia. I then preceeded to tell him some basic info around how the market works and that he should go long against the USD if he thinks we will gain the upper hand over the next few months. He then said yeah i understand the pairings but I mean if i wanted to physically trade (trade with real notes). I was trying to decypher the question then came to the conclusion that you cant do that as you already live in Australia therefore you cant go and buy AUD as you will be getting 1:1. I was then thinking he could buy US dollars then convert back but that would mean he would loose out if AUD went up against USD.

Is my theory of this right? the only way he can actually try his luck is by playing the fx market not by money/physical trading?

Maybe its just one of those Mondays and my brian is functioning right.

any ideas?

Thanks...

He could go to the bank and buy US Dollars. They would most likely rape him on the spread though. You may pay a couple pips trading electronically but they will likely charge him several hundred pips for the transaction.

Thanks Phil. Not sure if that answered the question though which is

"if a person who lived in Australia and who thinks the AUD will go higher within the next few months wanted to make money on this opportunity using real money, is it possible?"

Your answer of buying USD would result in a loss:

Buying - 1000AUD x .87 = 870USD

Selling - 870USD / .90 = 966AUD??


haha im starting to confuse myself! - also just realised in the first post i spelt brain as brian. so maybe its me.

If you are Australian, you are already long AUD.

i'm lost...... Ill try googling some FX basics. Is the example i gave above correct? if i went in today and bought 870USD with my 1000AUD, then sold back at .90, I would come out with less AUD's then i started with?

Or do i then look at inverse rates?

Your example is fine. You bought USD then the AUD went up so you will be able to purchase fewer AUD when you reverse the transaction. In short, you lost money. If you thougth the AUD was going up you wouldn't have purchased US Dollars.

Thanks Phil. So basically without trading via a broker or via forex market (trading in pairs) you cant make money by taking part in physical money trading in a scenario like this (you think your own currecy will go up vs. USD). Seeing as you are a resident of that country you are already in a long position therefore you cant go long again. And why would you sell if you think your own currency will go up.

Cheers. I must sound retarded. I definately feel it.

bank.it,

i guess i have a humble solution for this puzzle:

the solution is trying to understand the aud/usd as an asset class and not as a currencies that buy products and services.

try visualizing it this way:

you have 2 accounts -one funded by AUD and the other by USD-.

then u can choose between buying AUSTRALIAN APPLES (long AUD/usd = short usd/AUD) OR AMERICAN APPLES (short aud/USD = long USD/aud).

in this case you BUY australian apples (long AUD/usd = short usd/AUD) in your both accounts: the first you pay with AUD for the australian apples. In the second account you pay with USD for the australian apples.

price goes up (profit: u will receive more money than what it cost u to buy those apples)... then u SELL your delicious australian apples to your 2 neighbours. the first is gonna pay you WITH USD -then u go and add it to ur USD account. the second will pay you WITH AUD -then u go and add it to ur AUD account.

if prices goes down (loss: u will receive less money than what it cost u to buy those apples) .... same as above.. but ur balance will decrease.

hope this helps.

iiivb

Thanks for that. Yeah pretty much understand it now, its one of those things that it was so simple my brain couldnt process it, and the more i thought about it the harder the answer was to find.

cheers. Thread closed.

No, not really. You had it right to begin with.

Ehh, no... wait!

The thing that is confusing me about an alternative or variation of this scenario is how one could benefit, in your situation, of an increasing AUD by using strictly physical assets, avoid actual electronic trading markets, and not with just currency notes alone.

I was thinking one could buy properties in the U.S., but, why? If the AUD goes up over 3 months let say, why buy now and not wait, your money will buy more so long as U.S. markets stay flat? So, no, that wouldn't be logical. Same goes with all consumer purchases, vehicles for instance. There is just no point if it is the "home" currency that is going up. If you thought it was going to go down, then sure, buy U.S. stuff now, but that isn't the scenario.

Is there any means to purchase a physical asset (not buying bricks of gold), or even enter a contract of some kind, in a country which has a currency you believe will weaken against your own currency to benefit from that stated market movement? No matter what, if you make a purchase, you are losing AUD. Which means you would have to get a lone, i.e. carry trade, from the U.S. banks and purchase an asset in Australia, thereby changing the US$ to AU$. Of course, unless one has banking accounts in both countries, along with a 50/50 split of cash where shifts would be made to and from, there doesn't seem to be any clear cut way to do this with physical assets?

I am sure some economist has an idea or two.

Man, don't make it so complicated. Just take a credit in USD and convert it to AUD. That's all, if you want to do it with real money...

Thanks for the extra thoughts/input...