High Risk Investment Warning: Trading foreign exchange and/or contracts for difference on margin carries a high level of risk, and may not be suitable for all investors. The possibility exists that you could sustain a loss in excess of your deposited funds and therefore, you should not speculate with capital that you cannot afford to lose. Before deciding to trade you should carefully consider your objectives, financial situation, needs and level of experience. You should be aware of all the risks associated with trading on margin. The content of this Website must not be construed as personal advice.

October 12, 2008
2:42PM

Market Situation:

The Dow closed at 8,451 points last Friday plunging the whole week last week despite a concerted lowering of interest rates by the US, Europe, UK, and Australia by a whopping 1% each. The central bank rates are the
rates that the banks use to lend to each other and forms part of the cost of lending to other institutions (business loans, personal loans, mortgage loans).

The problem however is that there is no trust in the markets. Banks specifically having been burned by AIG and ratings agencies are no longer lending to one another, and no longer lending to other institutions. So even when the central banks of the world lowered their benchmark lending rates, the market completely ignored it and the equities market around the world also went down in concert.

Now let’s take a look at the late Friday announcement of Paulson. The US treasury will be buying equity in an array of US banks which will partly nationalize these banks. I believe this move is to perhaps kick start lending among the banks immediately. This move however was started in the UK where banks in the UK were also infused with government money by the Bank of England.

Will this help stabilize the Equity markets? I don’t think so. I think that it will actually make investors choose to remove their investments in the Major markets and place them in the banks since that is where the stabilization efforts are right now.

As a result, the Carry trade pairs may continue its declines as risk appetite has diminished and will continue to do so until firmer action is done to address the Capital markets (Stocks, Futures, Bonds, Forex, etc.) The US dollar will continue to strengthen as investors convert their illiquid holdings to US Dollars.

What I did last week:

I opened another forex trading account with a smaller account balance to trade with (US$900+). I labeled this account as my “high risk” trading account. I traded the markets with this account only with huge stops sometimes as much as 260 pips and kept my other accounts un-traded.

Like everything I do, I had to contain my risks and opening a separate account was my way of doing just that. It paid off and I made 500+ pips last week on that account alone.If you want to trade the markets in its current form, which is not going to be any less volatile, I suggest you do what I did and keep majority of your funds safe and only trade with a “high risk” account.

If you have an existing account, creating a new account is free and will not cost you any wire transfer fees if you are just transferring some money from your existing trading account to the new one.

Would you like to know what I’m trading this week? Join the forum at www.forexclubmanila.com

Monsterpips to All!

-Mark

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