Remember when there was only one superpower? Well now there are two. It’s not just the USA, there is the EU too.
The euro is the currency of the European block of 350 million of the world’s richest people – bigger economically than the US by GDP. The dollar is the world currency but the euro is a challenger and a possible replacement.
The Dollar Euro trading pair, USD/EUR, is a massively liquid forex market with billions traded every hour. The money flow is equivalent to the economic activity between America and Europe, so it’s not surprising that it is so gigantic it’s hard to grasp the scale, as you will see from this chart:
Traders don’t care about this. If you trade currency in million dollar lots it is no big deal at all. The trader is trying to catch hundredths of a penny. A ten thousandth of a penny is still a $100 profit at that kind of level, so many people are happy to trade a million for a few seconds to make a hundred bucks.
When you trade the USD/EU you are really trading the economic and political difference between the two countries. If the head of the CB pulls the wrong face at a monthly press conference or Janet Yellen looks tired one day in New York the dollar might move a cent against the euro. That’s an $11,400 profit or loss on a million dollar position.
This is why Forex is the fast game in town with some brokers offering incredible levels of leverage of 200 times. $5,000 down means you can trade a million and one wrong move and your money is all gone. Get it right, however, and you could be rich. Or so the story goes.
Even with reasonable levels of leverage fortunes can be made and lost. All the trader has to do is read the eco-political outcomes right and vast profits are there for the taking. Sadly that is hardly easy. Trading gurus like Soros have made billions doing it, but the tennis players like Djokovic have made fortunes playing tennis – would you win if you played against either?
But you never know, Forex is a 24 hour a day market and a never ending speculation and gamble. It is played by millions around the world from the famous Mrs Wantanabes, housewives in Japan who often drive the value of the yen and New Zealand dollar, to the super sophisticated hedge funds of London and New York. They all make and lose fortunes. That is the gift and the curse of trading Forex and giant currency pairs like the dollar/euro.
You can see the difference yourself and understand why you might want to ride the bucking bronco of the DAX instead of the calmer FTSE.
This chart is not a special example; it was grabbed as I write this piece. It is scaled to remove the effect of points, so the FTSE is expanded as if it was the same point for point as the DAX.
You can see the DAX swinging more violently than the FTSE, so the profit opportunity is greater and of course the possible losses.
The DAX packs one of the biggest trading punches on earth and that’s why the big boys play it.