Currency Trading And US Stock Market (Part I)
Right now the stock markets are down. The real magic of forex market unfolds when you combine it with other profit generating markets like the US Stock Market. When the stock market is performing poorly, the forex market enables you to offset your losses. When the stock market is doing well, the forex market also enables you to accelerate your profits.
Buy and hold investing was the norm among most of the public investing in stocks. But all of a sudden the stock prices plunged and never recovered again. Many small investors lost their lifetime savings in the stock market crash that happened in 2008. Most of us invest in the stock market. You should use the forex market to complement your stock market investing and supercharge your returns on investment if you do nothing else with the forex market.
Many foreigners invest in the US economy because of its size and the opportunities that is offers. US treasury bonds and stocks have been popular among foreigner for a long time. US stock market attracts investors from around the globe. The US stock market is the largest and the strongest stock market in the world. Before foreigner can invest in US stocks they need to convert their native currencies into US Dollar.
More and more foreigners want to invest in US stocks when the US stock market is doing well. The value of US Dollar will rise when they exchange their native currencies for more and more US Dollars.
But what happens when the US stocks start going down just like that has happened now. More and more foreigner and Americans look for other investment opportunities when the US Stock Market isnt doing well. When they sell US stocks, they get US Dollars. They need to convert these US Dollars into their native currencies or whatever currency they prefer. Investors start selling US Dollar to buy other currencies when this happens. The value of US Dollar drops.
The US Stock Market had been going up till 2008 when the sub-prime mortgage crisis started. Historically, there has been an upward drift in the US Stock Market that lasted many decades. In actual reality the stock market is cyclical. It ebbs and flows as the market participants vacillate between levels of confidence and doubt. Remember the NYSE crash of 1929. Many of us were not ever born then. It took a decade for the stock prices to recover. The same might happen this time again.
During the stock market boom, the investor emotions run wild. Everyone gets overexcited to the point of buying stocks selling at ridiculous prices. So the stock market booms and busts are fueled by the same investor emotional volatility.
During stock market busts also, the investor emotions run wild again. Everybody panics and start selling stocks at ridiculously low prices. Sometimes there is no rhyme or reason to what happens to the stock market. This is exactly what is happening at the moment.
Good times are easy. Everything is so easy when the times are good. Everyone who picks stocks looks like a genius during good times. It just seems to happen so naturally. You dont have to put a thought into it. Times like these give you an excellent opportunity to enhance your returns in the forex market.
However, forex market becomes more useful when the stock market loses its value. Virtually nowhere else the forex market works as a perfect hedge for your investments than in the stock market.
If you have all your money invested in the stocks, you are completely at the mercy of the stock market. However, if you put a portion of your money in the forex market, you can retain more control of your financial future. So when there is a downturn in the stock market like that in the present, you can offset your losses in the forex market.
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