29 Oct | Investing in Forex
In the past I’ve only dabbled in the world of forex. It’s a investment market that intrigues me though, and I’ll tell you why.
Most of my investment career [sic] has been devoted to the lower end of the UK share market; specifically, the Alternative Investment Market (AIM). Now price movements in AIM shares don’t necessarily follow market sentiment, hell, often they don’t even follow simple logic.
I’m unsure where the school of contrarian investing took root but I wouldn’t be suprised to discover that the catalyst was an investment in something on AIM with a big following, like a Berkeley Mineral Resources or a Gulf Keystone Petroleum.
Let’s call the first contrarian investor, Ian. Ian’s a baker….from Huddersfield.
Following a game-changing piece of news backed up a week later by some healthy financial statements (okay, maybe not BMR) the price of our AIM darling once again plummets.
Ian, who once rolled with conventional investor wisdom, the consensus of the bulletin board masses, finally says, “Enough! Whatever the popular opinion, I’m heading in the opposite direction! I’m sick of kneading dough all morning and losing dough all afternoon!”
And with Ian’s lack of confidence in AIM to deliver price movements that made sense, contrarian investing is born.
When investing in shares there’s no certainty to be taken from good news, especially at the AIM end of the market. There’s no certainty in bad news. Market makers and their sometimes wily ways often just add to the confusing milieu.
In making a timely investment decision the AIM investor needs to take into account factors affecting the company, the sector, the regions in which the company operates, as well as a raft of macro-economic factors. And then, when all the planets align, we still can’t be sure.
Where was I? Ah, yes, investing with a forex broker. Now forgive my over-simplification of a market that is way more complicated than I’ll every fully comprehend, but to my way of thinking, when investing in a pair of currencies, there are some pretty big macro elements that are of significant importance.
Rather than concentrating on the mixed motives of market makers and the day-to-day happenings at the company coal-face, the forex investor utilising MT4 is interested in big chunky economic news. Overall movements in stock and bond markets, the economic health of nations and changing political conditions.
And it’s that difference in focus that intrigues me about forex investment. Rather than immersing yourself in facts and figures from a set of company reports, you’re paying more attention to happenings in world news and current affairs and you’re looking more closely at government reports and economic calendars.
It’s the other end of the investment spectrum, away from the minutiae of specific company dealings and into the big wide world of macroeconomic movements. Probably no easier to profit from, but for those with the appropriate macroeconomic knowledge, perhaps price movements in currencies are more predictable.
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