How to Win at Forex Trading as a BEGINNER

Summary

This video offers a concise guide to currency trading, focusing on emerging and commodity market currencies. It highlights key factors to consider, such as capital flight accounts, portfolio flows, and central bank activities. The speaker emphasizes the importance of gauging investor sentiment, monitoring corporate actions, and understanding the impact of commodity prices on currencies. The video also touches on technical aspects like hedging, gearing ratios, and carry trade analysis, providing insights into the macroeconomic and fundamental factors driving currency markets.

Takeaways

• 🌐 The video is focused on currency trading, particularly in emerging and commodity markets, and aims to answer common questions about this topic.
• 💼 The speaker emphasizes the importance of looking at capital flight accounts to understand currency demand and supply dynamics.
• 📈 Portfolio inflows and outflows, along with foreign holdings, are key indicators for gauging sentiment in emerging market currencies.
• 📊 Central bank activities such as repo agreements provide insights into market movements and are closely monitored by the speaker.
• 🌐 Emerging market economies typically rely on exporting commodities, which significantly influences their currency values and market interest.
• 💰 The speaker discusses the significance of credit and bond markets in assessing central bank policies and overall market conditions.
• 🏦 Corporate hoarding and burn rates for cash piles are used as gauges for foreign exchange (FX) market sentiment and activity.
• 📉 The speaker warns against buying currencies where corporations are accumulating foreign assets due to low local trust, indicating potential market instability.
• 📊 Technical analysis in currency trading includes hedging, gearing ratios, value at risk, and carry trade analysis, with the Japanese Yen being a notable example.
• 🌐 The difference between commodity-rich and non-commodity-rich nations is a major theme in currency trading, affecting market volatility and opportunities.
• 📉 The speaker highlights the impact of commodity prices on currencies of net importers, such as Turkey, and the importance of monitoring current account values.
• 🌐 Sovereign wealth funds and national wealth funds, which often accumulate profits from commodity exports, are important for understanding market stability during commodity market downturns.

Q & A

What is the main focus of the video?

The main focus of the video is to discuss currency trading, specifically in the context of emerging market and commodity currency traders, and to provide insights into what to look for when trading currencies.

Why does the speaker emphasize the importance of capital flight accounts in currency trading?

Capital flight accounts provide an overview of demand and supply for a currency, which is crucial for understanding market dynamics and making informed trading decisions.

What role do portfolio inflows and outflows play in the speaker's currency trading strategy?

Portfolio inflows and outflows are paired with capital flight accounts to gauge the sentiment of foreign investors and locals, which helps in assessing interest in the marketplace and the overall health of a currency.

How does the speaker approach the analysis of central bank activities in currency trading?

The speaker tracks central bank activities such as selling or repo agreements to get a clearer idea of market movements and to understand the central bank's policy, which can influence currency values.

What is the significance of state funds and sovereign wealth funds in emerging market economies?

State funds and sovereign wealth funds are important because they often receive excess profits from commodity exports, which can be used to stabilize economies during periods of market suppression.

Why is the corporate side of the economy important to consider in currency trading?

The corporate side is important because it can indicate how corporates are managing their cash piles and foreign asset holdings, which can be a gauge for foreign exchange (FX) and a reflection of local trust in the currency.

What is the difference between emerging and developed currencies according to the speaker?

Emerging currencies are often tied to the export of physical commodities, whereas developed currencies may not have a major export focus. Emerging economies rely more on commodity exports, which can make their currencies more susceptible to fluctuations in commodity prices.

How does the speaker use technical analysis in currency trading?

The speaker pays attention to technical aspects such as hedging, gearing ratios, value at risk, and carry trade analysis, but emphasizes that their approach is not solely based on technical analysis.

What is the significance of the current account in the context of currency trading?

The current account reflects a country's trade balance and is an indicator of the flow of money into and out of the country. A deficit in the current account can lead to a depreciation of the currency as money is being depleted.

Why is the speaker cautious about trading certain currencies based on corporate actions?

The speaker is cautious because if corporates are accumulating large foreign currency holdings, it may indicate low local trust in the currency, which is not a good reason to become a buyer of that currency.

How does the speaker view the role of commodity prices in the performance of emerging market currencies?

The speaker believes that as commodity prices rise, currencies of countries that are net importers of commodities often suffer, as the cost of imports increases and can deplete the current account, leading to a decrease in investor confidence.

Outlines

00:00

📈 Currency Trading Insights for Emerging Markets

The speaker returns to video-making to address frequent queries on currency trading, focusing on emerging market currencies and commodity currencies. They emphasize the importance of monitoring capital flight accounts, portfolio inflows and outflows, and foreign holdings to gauge market sentiment. The video discusses the significance of central bank activities, state fund flows, and credit analysis in currency trading. It also touches on corporate cash hoarding and burn rates, as well as hedging and gearing ratios, value at risk, and carry trade analysis. The speaker uses the Turkish Lira as an example to illustrate the impact of commodity prices on currencies, particularly for net importers, and how current account values can reflect investor confidence.

05:01

🌐 Distinguishing Emerging from Developed Economies in Currency Trading

This paragraph delves into the differences between trading currencies of emerging and developed economies, highlighting the reliance of smaller economies on physical goods exports versus service industries in developed nations. The speaker uses Turkey as a case study to explain how a country's dependence on commodity imports can affect its currency value, especially when commodity prices rise. They discuss the impact on the current account and how it can lead to capital depletion and investor skepticism. The video also covers the role of credit in trades, particularly those sensitive to interest rate fluctuations, and the importance of understanding market liquidity through treasury yields. The speaker contrasts commodity-rich nations with those that are not, pointing out the challenges in trading major pairs due to the misconception of market volume being speculative. They conclude by advocating for a focus on emerging economies, corporate insights, and investor sentiment for effective currency trading.

Keywords

💡Currency Trading

Currency trading, also known as foreign exchange trading, involves the buying and selling of currencies with the aim of making a profit from fluctuations in exchange rates. In the video, the speaker discusses various aspects of currency trading, emphasizing its complexity and the need for a nuanced understanding of market dynamics.

💡Emerging Market Currency Traders

Emerging market currency traders focus on currencies from countries with developing economies, which can be more volatile and offer greater potential for profit but also carry higher risks. The video highlights the importance of understanding the unique dynamics of these markets, such as capital flight and portfolio inflows and outflows.

💡Capital Flight Accounts

Capital flight accounts refer to the process where investors withdraw their investments from a country due to economic or political concerns, leading to a decrease in the country's currency value. The script mentions that traders look at these accounts to gauge demand and supply for a currency, which is crucial for making informed trading decisions.

💡Portfolio Inflows and Outflows

Portfolio inflows and outflows represent the movement of money into and out of a country's financial assets, such as stocks and bonds. In the video, the speaker explains that these movements are paired with capital flight accounts to understand the overall sentiment and interest in a currency.

💡Foreign Holdings

Foreign holdings refer to the assets owned by investors outside of their home country. The script discusses the importance of considering both foreign and local investor sentiment when analyzing currency markets, as these holdings can significantly impact currency demand and value.

💡Central Banks

Central banks play a critical role in managing a country's monetary policy, which can influence currency values. The video mentions tracking central bank activities, such as selling currencies or engaging in repo agreements, to gain insights into market trends and potential trading opportunities.

💡State Funds and Sovereign Wealth Funds

State funds and sovereign wealth funds are financial reserves managed by governments, often used to stabilize economies or invest in long-term assets. The script explains that these funds can be indicators of a country's economic health and are relevant to currency traders when assessing the strength of a currency.

💡Commodity Currencies

Commodity currencies are the currencies of countries that are large exporters of raw materials. The video script discusses how these currencies are influenced by the global demand for commodities and how traders incorporate this information into their analysis.

💡Corporate Hoarding Rates and Burn Rates

Corporate hoarding rates refer to the practice of companies holding onto cash reserves, while burn rates indicate how quickly a company is spending its cash. In the video, the speaker uses these metrics to gauge market sentiment and potential currency movements, especially in the context of foreign currency holdings.

💡Carry Trade Analysis

Carry trade analysis involves looking at the interest rate differentials between countries to profit from the difference. The video mentions the Japanese Yen as an example of a currency involved in carry trades, highlighting the importance of understanding these trading strategies in currency markets.

💡Current Account

The current account is a record of a country's trade in goods, services, income, and current transfers. In the script, the speaker explains that a country's current account balance can significantly affect its currency value, especially for net importers of commodities.

💡Volatility

Volatility in currency trading refers to the degree of variation in a currency's value over time. The video script discusses trading around volatility, indicating that understanding and managing risk associated with market fluctuations is a key aspect of successful currency trading.

💡Liquid Currency Savings

Liquid currency savings are funds that can be easily converted into cash without significant loss of value. The video mentions comparing these savings to sovereign and national wealth funds to identify trading opportunities based on differences in liquidity and market conditions.

💡Commodity Exporting Economies

Commodity exporting economies rely heavily on the sale of raw materials for their economic growth. The script uses the example of Turkey to illustrate how economies that depend on exporting commodities can be vulnerable to fluctuations in global commodity prices, affecting their currency's value.

Highlights

Introduction to a brief video on currency trading, addressing common questions and focusing on emerging market and commodity currency traders.

Importance of examining capital flight accounts for an overview of currency demand and supply dynamics.

Pairing capital flight accounts with portfolio inflows and outflows and foreign holdings for a comprehensive analysis.

The significance of gauging perceived sentiment by foreign investors in emerging market currencies.

Tracking central banks' activities such as selling or repo agreements for a clearer understanding of currency movements.

Incorporating credit and bond market analysis to gauge central bank policy and its impact on currency.

Monitoring corporate hoarding and burn rates for cash piles as a gauge for foreign exchange.

The impact of corporates accumulating large foreign currency holdings as an indicator of low local trust.

Avoiding currencies where corporates are increasing local capital expenditure, as it's difficult to support such currencies.

Technical analysis in currency trading, including hedging, gearing ratios, value at risk, and carry trade analysis.

Trading strategies around volatility and the importance of thematic-based predictions or case studies.

Analyzing the foreign debt relative to GDP and trading the spread between liquid currency savings.

The reliance of emerging economies on exporting physical goods rather than services or banking.

The vulnerability of net commodity importers to currency devaluation when commodity prices rise.

The role of current account values in assessing the health of a currency in relation to commodity prices.

Incorporating credit into trades, especially those sensitive to interest rate swings and market liquidity.

The difference between commodity-rich nations and those that are not, and its impact on currency trading.

The misconception about the volume in major currency pairs and the importance of understanding the nature of that volume.

Emphasis on understanding corporate side and investor sentiment, both residents and non-residents, in currency trading.

The significance of current account sizes and sovereign wealth funds in emerging economies.

Concluding remarks on the nature of currency trading, emphasizing the importance of macro and fundamental analysis over technical analysis.

Transcripts

okay everyone welcome to a video I

haven't made a video in a while so

thought I'd come on here and make a very

short brief video today's video is about

currency trading and I get a lot of

emails and questions asking me about

currency trading so I'm going to keep

this short and brief but I just want to

talk about a few topics in terms of what

to look for when you're currency

trading um because I can't I don't have

the time to answer all the questions so

I thought I'd make this video um so

we're primarily Emerging Market currency

Traders and commodity currency

Traders um so I'm going to talk about

what we look at in the currency markets

some of the catalysts and just briefly

explain them um and sort of the

difference between emerging versus

developed currencies and why you should

avoid the m

so when we're when we're actually

currency trading we we're pretty much

looking at only a few things in great

detail so we we often start by looking

at Capital flight accounts uh and this

is a sort of an overview of everything

in terms of demand for a currency supply

and demand and we we pair this with

portfolio inflows and outflows and

foreign Holdings so because we're so

active in emerging market currencies

we're looking at sentiment for

currencies we're gauging perceived

sentiment by Foreign investors I.E

non-residents just as much as the

locals and we're looking at these larger

thematic themes to gauge basically

interest in the marketplace so we can

see what is the interest for a certain

currency so when we track a lot of the

central banks whether they're selling or

there's repo agreements

um that'll give you a much clearer more

precise idea of what you need to be

doing and because we're tracking these

agreements we're looking at flows into

State funds Sovereign wealth funds these

emerging market economies run on

exporting some sort of

commodity um so that's really important

and we incorporate credit we look at the

bond market whether it's ozs or anything

like that because we're looking at a lot

of the time the non-residents we can use

that to gauge more on the policy Central

Bank policy and that will give us a much

clearer picture um you know when you're

looking at the the corporate side and we

look at things like um what we call

corporate hoarding rates and burn rates

for cash piles this is another gauge for

FX you know volume when you're looking

at volume across the board so when you

you're playing these thematic themes one

of the key themes that I often look at

and I use this as an overlay for my

currency trading is looking at the

corporates on the corporate side when

you have corporates that are being

pushed to accumulate large foreign asset

Holdings foreign currency Holdings it's

generally because there's low local

trust so just because a corporate is

stepping in on the bid to buy said

currency it's usually because they're

trying to catch a leak patch leak if you

will um and that's not that's often not

a reason to become a buyer or bid that

currency so you know when we look at

currencies where the the country or the

economy in question is is putting

corporate Capital to work but they're

increasing their local capex it's very

difficult to get behind a currency and

to become a

buyer uh so that's more on the macro

side and the fundamental side when we're

looking at some of the technicals you

know we we do pay attention to things

things like looking at hedging gearing

ratios um we look at Value at risk we

look at carry trade analysis there's a

lot of great carry trades um at the

minute going on the Japanese Yen um is a

particular interesting one and we trade

around

volatility um you know and we're either

building a headwind or a Tailwind

thermatic based um prediction or case

study as I like to call it

and when you're looking at things like

you know the foreign debt relative to

GDP you know you can trade the spread

one of the things you can do is trade

the spread between uh liquid currency

savings and compare those to various

Sovereign funds National wealth funds A

lot of these emerging economies they are

an exporter of a very specific type of

commodity whether it's crude natural gas

the grains Market anything like this

palm oil

um whereas in the developed world in the

developed currencies um we don't really

have a major export these smaller

emerging economies rely on exporting

physical Goods rather than um the

service industry or banking if you will

so because of that you know take for

example turkey the Turkish Lear is a

trade we've been trading short for a

number of years now turkey has

approximately enough

crude oil in its own country for 10% of

the local resident demand the other 90%

of their crude oil demand comes from

them having to import crude from the

likes of uh the US Saudi Etc so as you

can imagine if if the spot price of

these Commodities is going up um you're

going to be in trouble uh the likes of

turkey will suffer because that money

unless they're locking in forward

accounts on on uh contracts for crude

that money is coming out of the

country's what we call the current

account and it's being depleted as the

current account value drops investors

become more wary and skeptical of

investing a lot of the time you'll

notice a direct correlation between as

commodity prices go up if you are a net

importer of Commodities you import more

than you export your currency often

suffers and we can verify that by

looking at current account values so

that's really

important we incorporate credit into

some of our trades as well most of the

active plays especially you know ones

that are most volatile to rate swings

interest rate swings and things like

this looking at uh treasury yields you

can gauge Market liquidity it's a good

indicator of

liquidity um and that's why there's

there's many opportunities in the

commodity currency space you know all

always the big theme is the difference

between commodity Rich Nations and those

that aren't so when you look at the

major pairs like cable euro dollar

they're often trending TR trending in a

in a Range bound uh Market go sideways

so it's very difficult to make money and

one of the big misconceptions that

retail Traders have is that the markets

are you know a trillion dollar business

um in in these major pairs what they

they don't realize is that most of the

volume that goes through the tick volume

is simply corporates hedging cash

accounts and it's not speculative volume

so we can't jump on the back of that and

and make profits so we like emerging

economies and we like to look at um you

know understanding the corporate side

and the investor sentiment and that's on

the residents and the non-residents the

foreign investors side as well and we

look at current account sizes in

Sovereign wealth funds National wealth

funds A lot of those oil profits natural

gas profits they go into Sovereign

wealth funds so these excess profits can

get digested when you've got periods

where the commodity Market is suppressed

um it's not so much so just wanted to

make this very short video to talk about

sort of currency

trading um and that it's really not

based on technical analysis it's not

based on

understanding uh breakout methods and

the usual stuff so I hope this helps

some people this is a very short and

brief video um there will be more to

come