Right now, there is a lot of activity in the FX markets. Traders and Investors worldwide are trying to ascertain which currency is the most sound and stable, and which will produce the best return. For my money, currently, I am short the Euro. While a lot of people are bashing the U.S. Dollar (and believe me, there are plenty of reasons to do so) from an FX standpoint, the dollar appears to be in much better shape than the Euro.
As all currencies trade in pairs, which means that one trades against another, if I am short the Euro, I will be long the USD. Currently the USD is trading about $1.30 to the Euro. This means it costs $1.30 to buy one of the European currency. I am looking for this to fall over the longer term down to what is called “parity” level. This is where $1 USD will buy 1 Euro. That would be a drop of 30 cents– or 3,000 pips.
If you are keeping score at home, that would equal $300.00 at 10 cents/pip, or 30% on a $1,000.00 investment.
However, a larger trader may size his pip to 10.00 each. That would provide a return of $30,000.00. And all we are doing is trading against the disparities between the two currencies.
As with all markets, the FX does not move straight up or down, and there will likely be a lot of bumps in the road between here and parity. But each one offers a new chance to enter as we sell the rallies.
Until next time…Happy Trading!
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