Currency Speculation in Emerging Markets

currency speculation in emerging marketsIf you’re an intermediate-level or expert currency trader, you may want to consider getting on board with currency speculation in emerging markets. While they tend to be less stable and more subject to extreme changes than the “superpower” currencies of the USD, EUR, JPY or GBP, they have nevertheless made many investors quite rich.

Buying and selling currencies in emerging markets requires an iron gut and an ability to make quick decisions about large sums of money. Emerging market funds have enjoyed returns as high as 200%, spurred largely by judicious purchases at times of high foreign investment and favorable trade agreements with superpower economies.

How to Trade Emerging Market Currencies

The basic mechanics of currency trading still apply no matter what currency you are trading. You will watch for news of internal and external political events, monetary policy and central bank decisions. Economics and politics will be your key interests as you stay abreast of the latest news from the emerging market of your choice. The difference is that a political event will likely cause prices to spike or fall more dramatically, meaning that you will have to be willing to take a bigger potential loss in hopes of making the larger gain.

Different emerging markets have drastically different monetary policy issues that you should study before investing in the currency.

For instance, the South African rand is free-floating, but it is trade-weighted to its trading partners, meaning that any shift in trade stance will likely cause the price to change significantly. However, the Hong Kong dollar is directly linked to the US dollar, meaning that anyone with HKD holdings would do well to pay attention to the state of the USD in addition to any regional political or economic considerations. The Singapore dollar is pegged to basket of its trading partners’ currencies, making it susceptible equally to fluctuations in these currencies as well as trade stances which might cause certain currencies to gain more or less clout in the basket.

These little differences may have a big impact on how much money you make or lose and when you buy and sell your emerging market currencies.

Trading Emerging Market Currencies by Volume and Volatility

Just like trading superpower currencies, you will need to be able to take advantage of when the rest of the world trades emerging market currencies. It may be different than you think, however, which is why you should do your research before beginning currency speculation in emerging markets. The South African rand trades around the same time as the GBP, while Mexican peso trading is generally pegged to US dollar trading. High volumes mean high volatility for emerging market currencies, making these times the most potentially lucrative depending on how you trade.

Most analysts suggest purchasing currencies in low-volume times and selling during high-volume times to take best advantage of the wide swings in value. For instance, the rand regularly swings up to 800 pips per day, while the peso has a daily range of about 500 pips.

Conclusion

Currency speculation in emerging markets is not for everyone. It requires people with an eye for political and economic details, a quick finger and a firm stomach. Lucror FX allows you to trade emerging market currencies as well as the standard offerings at any level. If you’re interested in emerging market currencies, consider trading small volumes. You may be able to make comparatively similar amounts of money as trading larger volumes of more established currencies.

Whether or not you choose to speculate in emerging market currencies, Lucror FX will be your guide through the exciting world of forex trading. Contact Lucror FX for more information!

 

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