Can you time the forex market?

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vu8
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Can you time the forex market?

Post by vu8 » Wed Sep 12, 2018 8:08 am

Hi there, let's say if I frequently purchase US Dollars using Chinese yuan. And right now you know China is manipulating Chinese yuan, artificially depreciating it to make Chinese goods and services more attractive.
Can I predict the movement of the CNY- USD market so that I can acquire USD at cheaper CNY exchange rate? Or this is just like trying to time the stock market, never gonna work?

alex_686
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Re: Can you time the forex market?

Post by alex_686 » Wed Sep 12, 2018 8:19 am

It is like timing the stock market, and maybe even worse. There are more and bigger players in the FX market than in the stock market. Very efficient and everybody reads the newspapers, government reports, and the gossip pages.

There is some positive history in the carry trade - selling weak currencies to invest in strong. You tend to get a modest 1% extra return per year with only a few ship wrecks.

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Cyclesafe
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Re: Can you time the forex market?

Post by Cyclesafe » Wed Sep 12, 2018 8:27 am

The easy answer is no. You can't time exchange rates unless you have inside information.

What is possible, however, is to use the stronger currency to buy goods in the weaker currency country.

For example, the British pound is cheap versus the dollar. Now is the time to book a trip (in Britain, of course) in pounds using USD. One can buy pounds too, but one is then assuming that the pound will hold its value versus goods in Britain (no local inflation) and/or that the pound will maintain or strengthen. The pound could continue to deteriorate, however, and one would have been better off sticking with USD.

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nisiprius
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Re: Can you time the forex market?

Post by nisiprius » Wed Sep 12, 2018 8:35 am

FOREX is traditionally one of the riskiest of all asset classes. It seems as if every couple of years you read news stories about giant banks losing literally hundreds of millions of dollars because of making a bad currency bet. FOREX is particularly bad because the expected long-term return is zero; it is a pure zero-sum game, you can only make money by taking it away from somebody else (who is trying to take it away from you).

In contrast, the stock market is constantly having money pumped into it in the form of dividends from companies that do useful things, get paid for them, and make a profit on them. Thus, all of the gambling-like risks you might take are at least riding on top of a long-term upward trend something on the order of 6-7% per year (real, inflation-adjusted). In FOREX, it is riding on top of zero.

Another issue is that currency is controlled or strongly influenced by government policy, set by small numbers of people making decisions in secret. It is far less transparent and far less market-oriented than stocks. On September 22nd, 1986, six people from the US and European countries got together at the Plaza Hotel in New York and decided that it was time to do something about Japan, that it was necessary to weaken the dollar--and basically colluded or conspired or what-have-you to manipulate the currency market and weaken the dollar.

No, I'm not a crazy conspiracy theorist, it really happened. See Plaza Accord.

Boom. Done. See chart.*

If you'd had inside information about that meeting, you could have made a fortune. Did you?

Image

It is pure speculation, and for most of us probably pure gambling. Can you gamble and win by luck? Of course.

*It's Eloise. I stuck in a picture of Eloise, because I have two associations with the Plaza Hotel: the Plaza Accord, and Eloise. Eloise is a fictional character in a 1950s book by Kay Thompson. She may or may not be based on Liza Minelli. She is a mischievous and bold little girl who lives at the Plaza, inadequately supervised by her governess, and is obviously bored and entertains herself by exploring the hotel and innocently annoying everyone. This painting of Eloise hangs in the Plaza, or used to--assuming it hasn't been replaced by a portrait of the current hotel owner--and I personally walked into the Plaza hotel once just to see it. As far as I know, Eloise has nothing to do with the FOREX market.
Last edited by nisiprius on Wed Sep 12, 2018 9:53 am, edited 5 times in total.
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nedsaid
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Re: Can you time the forex market?

Post by nedsaid » Wed Sep 12, 2018 8:41 am

vu8 wrote:
Wed Sep 12, 2018 8:08 am
Hi there, let's say if I frequently purchase US Dollars using Chinese yuan. And right now you know China is manipulating Chinese yuan, artificially depreciating it to make Chinese goods and services more attractive.
Can I predict the movement of the CNY- USD market so that I can acquire USD at cheaper CNY exchange rate? Or this is just like trying to time the stock market, never gonna work?
How much do you know about the currency markets and how they work? It sounds like what you are doing is seizing on a narrative and trying to exploit it. I mean everybody and his brother knows that China has been manipulating its currency to makes its goods cheaper overseas. What do you know that others don't know?

Lots of people read a few articles and then think they are experts. The reality is that these markets are complex with lots of players. You are competing with people with more knowledge than you, people with more money than you, people with more contacts around the world than you, and people with more powerful software and hardware than you. It just seems like a loser's game.

About the only currency play that I have are investments in International Stocks and Bonds. The US Dollar has been relatively strong against other major currencies in recent years, depressing the returns from these investments. I keep expecting the dollar to fall but the markets don't listen.
A fool and his money are good for business.

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nisiprius
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Re: Can you time the forex market?

Post by nisiprius » Wed Sep 12, 2018 9:32 am

Actually, it could be even worse, nedsaid. I live in a town of thirty thousand, which has a closed Facebook group with ten thousand members. About a month ago, somebody was asking about FOREX. A friend had told her that it was a pretty good way to make money and was telling her about, IIRC a no-cost seminar that was going to explain how to do it. I assume the seminar was a hook to enroll in a yes-cost course or something. So, like cryptocurrency and penny stocks, apparently FOREX is being pitched to completely inexperienced investors.

vu8, why are you asking about FOREX? What, exactly, have you heard about it, and from where?
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

cheezit
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Re: Can you time the forex market?

Post by cheezit » Wed Sep 12, 2018 9:38 am

I play table tennis with a guy who worked the forex desk at a large bank for the better part of a decade in the 2000s. He was in the black for essentially all of his time there, but his descriptions of the market (which is much less regulated than the stock market) were not heartening for an individual investor (speculator really), and frankly there were plenty of equally smart people putting in the same amount of hours toward research as he was over the same period who were in the red and deeply so.

Same guy was a personal acquaintance of the LIBOR whistleblower. Whenever I bring up some sort of bank scandal (eg. some investment bank getting a giant fine from the SEC for lying to their institutional customers about a dark pool and making money on both ends by selling advance information about their trades to HFT firms so they can front-run them), he'll chuckle and let me know that there's way worse stuff going on that nobody ever hears about. My main takeaway from our conversations has been that finance is a crazy world, and I'm glad I don't try any real active trading because it's more than the odds that are stacked against you.

jminv
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Re: Can you time the forex market?

Post by jminv » Wed Sep 12, 2018 10:34 am

vu8 wrote:
Wed Sep 12, 2018 8:08 am
Hi there, let's say if I frequently purchase US Dollars using Chinese yuan. And right now you know China is manipulating Chinese yuan, artificially depreciating it to make Chinese goods and services more attractive.
Can I predict the movement of the CNY- USD market so that I can acquire USD at cheaper CNY exchange rate? Or this is just like trying to time the stock market, never gonna work?
If everyone knows something, it is already priced in, so you won't be able to profit from your insight that the yuan/dollar exchange rate is at some artificial level.

You could predict the movement of the market if you had inside information such as that the Chinese will allow further depreciation of the Yuan or the fed is going to hike rates less or more than currently expected, etc. Presumably, this is not the case, so you have no edge.

Since you have no edge, the only way you will profit in forex is through chance. You could also go to the casino if you like. I personally sell dollars and buy another currency frequently because I have dollar assets but expenses in a foreign currency. Some of the foreign currency ends up in a foreign bank account. About a year ago, I sold dollars and bought the foreign currency and since then it has gained value, but that's luck, not my skill in timing the movements of exchange rates. I would prefer to invest in a company with underlying earnings or bonds paying interest, rather than currency.

Why the interest in forex? There are a lot of forex scams (predictive software, forex clubs, investment advice, etc) around, just keep that in mind if you do decide to play in the forex markets.

vu8
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Re: Can you time the forex market?

Post by vu8 » Wed Sep 12, 2018 11:36 am

@jminv
I'm in the exact same situation except all my expenses is in the US dollar. So is there a way to buy cheaper US dollars or there's basically noway you can do anything and just buy dollars despite of the time and price?

LeftCoast
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Re: Can you time the forex market?

Post by LeftCoast » Wed Sep 12, 2018 2:10 pm

My former employer was a financial services company that was thinking about buying a company that offered FX trading to individuals. The individuals traded FX spot, forwards and options on a speculative basis. More than 90% of the individuals lost money trading FX. Almost all of the individuals gave up trading FX within a year, meaning that the FX dealing company needed to replace their entire customer base every year. We didn't buy the company.

ge1
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Re: Can you time the forex market?

Post by ge1 » Thu Sep 13, 2018 3:49 pm

vu8 wrote:
Wed Sep 12, 2018 11:36 am
@jminv
I'm in the exact same situation except all my expenses is in the US dollar. So is there a way to buy cheaper US dollars or there's basically noway you can do anything and just buy dollars despite of the time and price?
With a FX trading account you can go long/short (almost) every currency pair, certainly all the major ones. I used to have one with FOREX.com and it was very easy. You have to watch out though for a few things, most notably

- Leverage: A reason so many traders lose their shirt with FX is the amount of leverage you can take. I think for the main currencies even as a retail investor you can leverage up to 50:1, i.e. with $1,000 you can buy USD 50,000 worth of currencies. Incredibly powerful if in works in your favor, but devastating if it goes the other way.
- Roll over rates: Depending on the interest rates in the country you are short and long, you will either earn a spread or have to pay a spread. Given the leverage this can be meaningful $'s for positions held over longer time periods.

As many pointed out, actual FX trading is a zero sum gain with no expected growth (unlike stocks).

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