Asset Purchase Programe

Asset Purchase Program

What is this?

In every month we see some central banks is going to buy Asset. What is this? And what is the effect of these purchases? Here Asset means what we have to understand it. Asset is mainly Treasure Bonds or Bills. Or it may be Share of companies. But rarely it is meant shares. Normally it is meant BONDS OR BILLS. So when a CENTRAL BANK buy assets from Economy, it pushes money to the Economy. BONDS is going out of Economy so its supply is reduced, so yields is down. So Currency will strong. Again the opposite side is: when money supply is increased in the economy the Currency should devalued. So Currency will depreciate. So ultimately overall reaction is near about ZERO in the economy. 

Best of luck. 

Happy Trading. :)

FED Operation Twist September 2011

FOREX TRADING with Fundamental Analysis

I am trying to explain it in simple language. I could use TECHNICAL language like yield, face value or bla bla but I am not using to make it simple.

Twister means swap or change.

Federal Reserve has bonds in their portfolio. You know BONDS have maturity period like 1 year, 2 years, 3 years, 10 years, 15 years, 30 years. Higher period BONDS give higher interest and lower period BONDS give lower interest. So if we get 2% interest rate from 1 year BOND, then obviously we shall get 2%+ interest rate from 2 years BOND. This is normal situation. Sometimes abnormal situation happens. That is different situation.

Now Supply and Demand: You know guys when something's supply is up, then its price will go down. Say a BOND has a face value and market value both of $100 and its interest rate is 2% . Then right now its Yield is also 2%. If its market value is lowered due its supply then say its market value right now is $95. As bond's interest rate is fixed so you will get $2 from this bond also per year. Now you bought the bond at $95 and the amount you are getting after one year is $2 then your YIELD=2.10%. So if one bond's supply is increased then its value will go  down and its yield will rise. If a bond's Supply is reduced then its demand will increase and market price will go up and yield will go down. This is all about BOND market and YIELD in Brief.

Now the Twister Operation: FED has BONDS in their portfolio. I have told it in the outset of the article. They have some short time period BOND which have to pay off within one or two year. The total BOND valued like this is near about $400 Billion Dollar. They are going to sell their short term bonds. When they will sell bonds they will get money after the sell of short term bonds. Right? They will use this money to BUY LONG TERM BONDS from the market. I think up to this it is clear to all about what is actually TWISTING OPERATION done by US FED in last September.

What will be the reaction? This is the main part of the article. As there are so many news and so many articles available on this issue. But I rarely got any clear clue about the reaction of this decision made by FED. I am here explaining it. The sold BONDS are short time right? Then who will buy those bonds will be able to en cash those bonds within short time..Right? Then the money flow in the economy is going up. FED was trying to do that…They wanted to increase money flow in the economy.. Quantitative easing can do this, but the problem with Quantitative easing is: it makes the inflation high and vulnerable. So they are doing it with selling short time period bonds to holders of long term bond holders. In this way LONG term bond holdings of FED will go up and the yield will go down as the SUPPLY is reduced of long term bonds.

So ultimately FED is empowering money supply in US economy without hampering the US inflation and not extending the Balance Sheet of FED.

This is all. Will see you again with another issue. Happy Trading

Trend in FOREX market

Do you know guys what is the most beautiful thing in FOREX market?From my side it is TREND. Many of us search a market for big trend and they want to earn from trend. FOREX is that market. Here is a one and half years analysis of EU from November 2006 to May 2008. It made a gap of about 3500 pips within this time. It did give correction in many zones but the ultimately TREND was long. So what should be your trading approach in this market? Will you trade anti or the TREND direction? If you are a fool you will trade ANTI DIRECTION of TREND, and if you are smart enough then you will go for TREND DIRECTION.

For long term Trend Identification you can use many things. You can use Technical Analysis, you can use Macro Analysis for long term Trend Analysis. I use MACRO analysis for TREND identification. If you don't know Macroeconomics, it is no matter. Here just see I did use only 200 SMA for trend show. The reason is why I did use this 200 parameters? The reason is though the a year has 365 days, after deducting two holidays every week and other holidays for occasions, the year total trading days is 200 near. So many traders and me use 200 SMA. You can also use it.If FOREX is so easy then why people lose money here? People lose money here as they have no idea about risk management and their greed. You have to have your own risk management system then the TREND is reversing. You can use Price Action of Daily, Weekly or monthly for reversing your Trend. Here is a chart of USDBDT pair for the last two years. What will you do here? Go long or short? I can explain the reason of USDBDT uptrend. Will do it in some other post. Just I wanted to show you guys the REAL FOREX trading with proper Money Management.

Will I follow FA or TA in FOREX market? Part One

           In my last one year training experience the most answered question was this one. Someone asked me whether he would follow only TA or FA or both. Someone asked me whether he would follow news from different sources. Here I am explaining it with my experience in FOREX market. 

           FOREX market is moved by fundamental or Economics rules. Ultimately every thing is controlled by Economics' rules DEMAND and SUPPLY. But how demand and supply is controlled? And who are creating this demand and supply in FOREX market? If I want to answer this question I have to explain the different levels of buyers in FOREX market. I shall write an article on this later. Right now just remember that some BIG institutions together making this demand and supply. And they are really big. May be they are central banks, may be they are big corporate banks who has trillion dollar assets, they are your brokers who are making market every time you are trading. So you are trading in a place where the water is full of crocodiles and you are a tiny fish in that water. A tiny fish is fighting with many crocodiles. 

            But FOREX is a very popular place for general people. Do you know why?As they win their first trade in life. That is worse and they believe that it is an easy market to earn money. Actually it is not. They feel it with the course of life. Only 5% traders in long run win money in FOREX market. Every market in the world is designed for the big institutions as the institutions made the market. So who are in a dream that he will make money with the eye blink, then he is in a dream. So wake up guys. Your hard earned money is not for gambling. Put them for trading when you are expert in this arena.

            To be continued.........