Things to know about trading fixed currencies
Trading fixed currency will require that you get to understand the factors which are fundamental to the same. The technical analysis isn’t quite useful since fluctuations of the rate doesn’t have continuity, low liquidity, and there isn’t enough data to feed the indicators to make them generate meaningful and timely signals. Also, the factors that take part in the trading of the fixed currency at cfd trading South Africa are normally large players that have big pockets, having choices which are less sensitive to strategies and technical methods.
There happen to be two ways of trading currencies which have been pegged. One of the strategies involve to exploit short term fluctuations which are routine which might have all types of causes. The fluctuations tend to be quite frequent but in most cases, they return to the official value of what was pegged, and can be exploited for profits.
If such a thing happens, the traders try to bet that the peg is going to hold, entering a position accordingly, and will await indefinitely that ordinary market or intervention dynamics are going to bring the quote to wherever it is expected to be. Another strategy requires that the crisis-prone economies get identified, and opening of positions which require that the peg get tested often, even broken if the need be.
It is a method which is long term, where economic configurations which are profitable become rare. But , there are demonstrations online proves otherwise that, when you bet against the British peg, strategies like the ones explained above might be quite profitable and at the same time successful if they are built on fundamentals which are solid.
In both the methods above, a good understanding regarding the fundamentals is required. There is a need for the traders to keep an eye on the currency all the time, in flows and out flows, balance the statistics of payments and more importantly on the official statements of monetary and government authorities.
In case the statements get backed by a surplus which is health as well as an intervention policy that is credible, the peg can easily be traded with confidence on short run basis. If there are no reserves by the central bank to intervene in maintaining the fixed regime, or in case the government is not sure regarding the ultimate direction of the economic policy, you have to be careful regarding the scope and the guide of your position as you trade on the peg.
For a trader who is knowledgeable, trading pegs can be quite lucrative and relatively easy and simple. But it might be wrong thinking of this trading strategy as being free of risk. While the small profits which are created in the trading on short term become quite lucrative if you trade blindly to the fundamentals, a peg which is collapsing is capable of wiping out all your gains of the days or weeks in a few minutes or hours. Thus, although it is a strategy that is believed to be safer, there is a need to study it diligently and analyze carefully.