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CAN YOU MAKE MONEY WHEN MARKETS ARE FALLING?
FOREXYARD
G20 meeting: What is the EU focused on???
FOREXYARD
Trading During Turbulent Times
• Berlusconi’s resignation• Greece Default?• European-Union Dismantle?• European Debt Crisis• Japanese Tsunami• Lehman Brothers Crisis
FOREXYARD
Trading During Turbulent Times
• Microsoft share after Lehman Brothers
FOREXYARD
Trading During Turbulent Times
• This is why experts recommend – always trade using the “Market Portfolio”
• Instead of betting on a single stock – diversify your investments over all of the market’s leading stocks
This is indeed a great advise. Yet how useful is
it during turbulent times?
FOREXYARD
Trading During Turbulent Times
• Dow Jones share after Lehman Brothers
FOREXYARD
Who Makes Profits During Turbulent Times?
• Probably the most famous example of how to make enormous fortune during global crisis is George Soros – “the man who broke the Bank of England”.
• During 1992, just before the UK currency crisis, Soros Betted that the British pound will not join the EUR-Group, and as a result will be significantly weaker.
• He then opened large short positions on the pound.• Made about $1.1 billion during the crisis
FOREXYARD
How to Reduce Exposure to Falling Markets?
• The main concern when participating in equity markets is the ripple effects of global/local crisis on our portfolio
• When investors flee off the market – almost all prices fall. Including assets which don’t necessarily have directlink with the crisis
FOREXYARD
How to Reduce Exposure to Falling Markets?
»Using “short” orders
Problems:1. Not always possible2. Considered to be “Risky-Trading”3. Positive inflation targets
FOREXYARD
How to Reduce Exposure to Falling Markets?
»Using “put” options
Problems:1. Not always possible2. Could turn up to be quite expensive3. Hedging yourself can - at best - prevent
losses. It cannot generate profits
FOREXYARD
How to Reduce Exposure to Falling Markets?
»Shorting on Currencies
• Unlike almost any other financial instrument – there are no restrictions on shorting currencies
• Short and Long orders on currencies are basically identical
• «Shorting» the Dollar vs. Euro is exactly like «longing» the Euro vs. Dollar
FOREXYARD
Safe-Haven Currencies
There are three currencies which are typically being referred to as «Safe-Haven» assets
• The currencies are: USD, JPY and CHF• This means that investors – worldwide – put
their faith in these economies during times of crisis
• Investing in the economy encourages speculators to long these currencies as well
• The end result is…
FOREXYARD
Trading During Turbulent Times
• EUR/JPY following Lehman Brothers crisis
FOREXYARD
Safe-Haven Currencies
EUR/JPY fell from 170.00 to 119.00within three months
Potential position:• Opening a short EUR/JPY position of 500,000 contracts• Requires $4,000 in margin (using 1:125 leverage)• Profit potential: $235,000• In simple words – longing the JPY against the second
most traded currency in the world offered you a 5,875% yield within three months
FOREXYARD
What if the Crisis Takes Place in Japan Itself?
• In April 7th 2011, Japan was the victim of one of the most horrifying natural disasters in modern times
• The disaster included an earthquake and a tsunami
• Developed into nuclear crisis• About 16,000 deaths and
approximately 4,000 missing• Estimated loss to the
Japanese economy:$35 billion ($35,000,000,000)
FOREXYARD
EUR/JPY Following Japanese Natural Disasters
EUR/JPY fell from 123.00 to 103.00 within five months
FOREXYARD
EUR/JPY Following Japanese Natural Disasters
Potential position:• Opening a short EUR/JPY position of 500,000
contracts• Requires $4,000 in margin (using 1:125 leverage)• Profit potential: $110,000• In simple words – longing the JPY against the
second most traded currency in the world offered you a 2,750% yield within five months
FOREXYARD
How is That Even Possible?
FOREXYARD
And in Simple Words…
• The Japanese crisis has reduced what was already a very low risk-appetite in the market
• As a result, investors took their money and put it in what we previously called: «Safe-Haven» assets
• Speculators saw the trend and immediately stepped in – taking advantage of the crisis
• Global Crisis Stronger Yen
FOREXYARD
Another Alternative - Gold
• One of the ancient investment in history of Mankind
• One of the most used instruments for monetary exchange
• Investors use it to hedge risksfrom Global uncertainty
• Why…?
FOREXYARD
Another Alternative - Gold
FOREXYARD
Another Alternative - Gold
• Till Late 2007 Gold Never Reached over $700 an ounce
• Then, investors who sensed the possible forthcoming crisis turned to gold
• They understood the potential in investing in gold for hedging risks
• The big break-though happens once again following the Lehman Brothers crisis
• Gold is boosted and reaching an all-time record high of $1,900 an ounce
• Until today, gold has more than doubled its value!
FOREXYARD
What Makes Gold so Appealing?
• Universal Investment – isn’t valued by the strength of a single economy.
• Isn’t Consuming Dependable – demand for gold does not depend on consumption power.• “Doctor’s Orders” – psychological effect. The “book” tells us – whenever markets crashes: “turn to gold”.• Simple Conception – doesn’t involve
sophisticated investments.
FOREXYARD
The Bottom Line
• Global crisis are terrible times.• People lose their jobs, their equity assets and
even their pension investments.• It is very important, especially for those of us
who invest their funds in equity markets, to know how to handle these hard times.
• Investing in currencies and in certain commodities has proved itself – over and over again – as the most useful tool for the common man to rescue his funds, and perhaps even to gain capital.
THANK YOU