Trading Currency Futures And The Forex Spot Market

trading currency futures Trading Currency FuturesTrading currency futures can be an exciting and lucrative investment activity. However, one should understand the subtle differences between trading currency futures and the forex spot market before trying to engage in this financial exchange. The essential difference lies in the timing involved in trading futures.

In a typical spot market investment, stocks, commodities and other goods are traded at an agreed upon price immediately after bargaining is finished. This is what most people imagine when they think of Wall Street, fast-paced negotiations over stock prices followed by quick sales. In futures’ markets, these situations are altered by the use of futures’ contracts. These contracts bind the two traders involved and force them to buy or sell the stocks or other goods in question at a future date for a certain price. Obviously, everyone involved is betting on a particular change to occur in the value of that stock or other good between the time of the contract’s initiation and its end.

Trading Currency Futures and the Foreign Exchange Spot Markets

Trading currency futures involves a similar contract, but in regards to the value of a particular pair of currencies. Each member of the pair has a specific currency that he or she would like to exchange. People engage in the foreign exchange spot market whenever they go to a bank or some other financial institution and exchange their money for some foreign currency. Trading currency futures brings together two currency holders who agree on an exchange price but do not immediately enact the exchange.

These futures are used to defend one’s self against fluctuations in the value of a currency. If someone is going to receive a lot of a particular currency in the future but is concerned about the currency’s value at that point in the future, he or she may try to sell a futures contract on that amount of currency to lock in a certain exchange rate in some other more stable currency. This prevents a trader from suffering loss just because the currency in which he or she is going to be paid loses value.

Trading currency futures is also a form of speculation in which a trader can profit from the rise and fall of currency exchange rates. As with other investments, if someone sells futures at a higher price than they bought them, they keep the profit. Outside the timing requirement, trading currency futures is not that much different from trading any other investment found on the market.

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A Penny Stocks Value

american dollar Does a Cheap US Dollar Make Penny Stocks Cheap?Not so long ago, hedge funds and traders made massive gains by going long commodity stocks and shorting the U.S. dollar. The trade became very crowded and finally reversed. However, at the tail end of that trade commodity stocks like Newmont Mining (NYSE:NEM) and Potash (NYSE:POT) trading near or at highs. Right now, the dollar is very weak and most commodity stocks are in the middle of a trading range.

This condition of the dollar could provide trading opportunities. Not only in the large cap commodity based stocks, but with OTCBB mining penny stocks as well. Most gold bugs have the mentality that gold is the currency of last resort and site limited demand issues in their analysis. Their mentality often causes them never to take profits and lose hard earned gains.

By no means are we saying to buy and hold gold penny stocks for 5 or 10 years. Mainly because commodities often trade in cycles and in this environment, a bird in hand is often better than two in the bush. We are simply suggesting that a rally in large cap gold stocks could trickle down, even to stocks on the Pink Sheets. For instance, if we see a major rally in the mid and large cap mining stocks, common sense says that investors may take a look at a micro-cap name trading under $1 too.

For now, monitor the news flow on the weak dollar and watch how other gold stocks and gold ETF (GLD:NYSE) reacts to the news. Then form a penny stock list that contains your favorite mining plays. Then if your ready, act quickly. This trend may not last long, so take your profits. Recently, we highlighted Gold American Mining Corp. (OTCBB:SILA) and you may see more mining ideas from us shortly.


Penny Stock is Generally News Driven

yuan chinese currency Could the Yuan Effect Penny Stocks ?Yesterday we saw an interesting development with the revaluation of the Yuan in China. The move seemed to have an impact as steel stocks rallied and while gold and copper stocks were weakened.

The US dollar rallied as well in response to the news. In a normal market, a rising dollar generally wreaks havoc on commodity based stocks and provides the opportunities for massive gains for traders who are short sellers.

Right now we are actually in uncharted territory. China has generally been unresponsive to world markets opinions on their management of their currency. China’s move will unquestionably have an effect on large cap commodity based issues, but does the Yuan really impact penny stocks? Could this move make a micro cap retail play more attractive than a mining company?

Generally hot penny stocks are news driven and are not as sensitive to broader market moves. For instance, Freeport Macmoran (NYSE:FCX) currently doesn’t have the strongest chart, but that doesn’t necessarily mean that we won’t see a huge gain in some unknown penny stock that is mining for copper.

We are looking for a trend to develop and for the market to adjust.  Significant events like this do not happen like this every day.  Uncertainty is definitely prevalent with traders right now.  As events develop, strategies will change.  Once event like this can shift all aspects of the market.

While penny stocks for the most part are news driven, the influx of money in and out of OTCBB companies could have a technical impact as well.  We will be keeping an extremely close eye on micro caps.