Fundamental FX Triad

As we recall, the US dollar reached relative highs in March after its 24% rise from the 2008 lows. While the recent sell-off has been across the board, losses against commodity currencies have been pilling-up. The Australian and New Zealand dollars are each up more than 20%, and the Canadian dollar has gained 16%. There have been two distinct waves to the dollar’s recent weakness. Initially, the dollar sell-off was driven by investors looking for signs of global economic recovery. As confidence increased, investors rushed into buying risky assets, and abandoned safe-haven U.S. government bonds and the dollar. Then, toward the end of May, investors became worried about the potential for a downgrade of the U.S. sovereign-debt rating and sold-off the dollar again. Let’s address few fundamental aspects within the FX space.

Options Trading 101

Speculation is certainly not for everyone, but trading is definitely not a snobbish occupation of an exclusive club of Ivy League graduates. There are many things to be said about trading. However, two points are paramount in becoming a successful trader: a rock-solid discipline and a timely acceptance of the losses.
In a nutshell, investors could have either a bullish or a bearish sentiment. That practically translates in the expectations that the markets will rise or fall within a pre-defined time-horizon. Under a quick classification, any financial instrument could be either a spot product or a derivative product. For instance, when you buy 100 shares of Apple [AAPL] you create a long position in that stock. For every dollar that AAPL share goes up in value you make a $100 in profit. Your profit & loss (P&L) account goes up or down linearly with the underlying product. However, when you trade futures or options products, the relationship does not work anymore. An option is a derivative, as it derives its value from an underlying asset. As the price of the underlying asset, such as a stock or commodity, moves in the marketplace, the price of the option changes in harmony.