Trade War : Will it be helpful for US economy & sagging Dollar ?

De-globalization is the idea which picked up energy after BREXIT. Trump’s choice to force duties of 25% and 10% on steel and aluminum import will add to de-globalization talk. US, under Trump, has hauled out of Trans Pacific Agreement and began arranging NAFTA. Worldwide exchange has begun redirecting from way of multilateral exchange settlement to plurilateral exchange agreement.

Forcing of levy by Trump, in bearing of US first arrangement, is probably going to harmed US and different economies associated with related exchange with Uncle Sam. Canada, Brazil, EU, China, Russia, UAE are the significant nations who are enjoyed exchange of both the wares. Car and development industry expends near 65-70% of US steel request. As per an article distributed in Reuters, a normal US vehicle devours 1-1.2 ton of steel .US steel generation cost is in the middle of $825-875 for each ton. In the event that we consider, imported steel cost in the middle of $650-750, 25% import levy may add $150-180 to the vehicle’s expense. Aside from steel, aluminum is additionally utilized in car which is likewise likely add to creation cost. US imports near 7 million tons of Aluminum as neighborhood creation isn’t equipped for providing to US request. Canada is the significant provider of both Aluminum and steel to US, which is as of now shaken by NAFTA arrangements. Retaliatory activities have been cautioned by EU, China and Canada. EU has arranged rundown of items, $3.5 billion worth of exchange, on which 25% import obligation will be mixed, in the event that Trump advance with the arrangement.

US shoppers are probably going to get affected as buyer surplus will be redirected to government’s assessment kitty since it is exceedingly far-fetched that trading economies will lessen rate so as to be focused. US ventures like vehicle, aeronautics, development, aluminum bundling will confront the brunt of expanded crude material expense and effect on deals. US is as of now loaded by twin deficiency and require remote money to cross over any barrier. Corporate tax break will liable to include $300 billion shortage over next 2 years. China and Japan holds more than 50 % of outside capital investment in US treasury. Treasury war is one of the retaliatory response which influenced nations can pick. This situation of dumping US bonds is profoundly impossible as it will in the end hurt treasury holding nations remaining bond portfolio .

Greater expense of definite merchandise will hurt investment funds of US buyers. US steel and aluminum industry are progressively capital concentrated. So machine will add benefit to makes bottomline and business won’t be profited much. Work in industry ,reliant on wares as crude material ,will be affected in the event that US purchasers don’t free tote to spend additional greenbacks. Inflationary weight will be checked whether US buyers keep obtaining at same pace. Treasury yields can ascend because of inflationary weight, quicker pace of financing cost climb and affected nations falling back on treasury war. In last 2 occurrences of tax climb in 1995 and 2002, greenback saw deterioration in esteem, however it was joined by different reasons moreover. Last couple of lodging and development information were appearing of first time purchasers because of more expensive rates of single family home which ascended by over 5% in 2017. 30 years home loan rate is drifting @4.3% which is close to multi year high. Expanded expense of development and weight on treasury yield (thusly affecting home loan yield) will build danger of droop in lodging area.

USD ought to at first devalue against worldwide monetary forms, if Trump proceeds with arranged tax climb. Progressively, difference in central banks policy will make US treasury increasingly pertinent to speculators looking for generally safe fair return venture and help greenback to win lost ground.

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Trading Psychology and Methodology

1. Currency Pair Analysis: Perform a world class analysis to determine which currency pairs have the greatest profit potential.

2. Trade Management: Trade management techniques to take the most of each trade when the market moves on their favor.

3. Study the Market: Entry system adapts to the current market conditions, follow the market instead of guessing.

4. Risk Management: Risk management techniques to set stop loss and take profit orders at optimal levels. Accept risk and feel comfortable with their trading, they know it’s the only way to get consistent results.

5. Money management techniques to allow the geometric growth of their account and avoid the risk of ruin.

Long-term analysis: Methodology to determine which currency pairs have the greatest profit potential.

Short-term analysis: Entry systems: breakout, retracement and continuation price action entries.

Capital management: Determine the formula that you will use to decide how much capital to risk on each trade.

Trade management: Strategies to manage trades, when to scale in and scale out of trade and more.

Risk management: Optimal levels to set stop loss, take profit levels, trailing stop to help you reduce risk.

Trading Psychology: what needs to know to accept risk and feel comfortable about every trading decision made.

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Foreign Exchange Market Participants

The $5 trillion dollar Forex market witnesses a lot of market participants. However, all of these participants have different motives. An understanding of these motives is required to predict their behavior in the markets. Also, some of these participants have deeper pockets, better information and are more active than the others.

There are various participating entities taking part in forex trading. The main players or the main market participants in currency exchange are Central Banks, largest investment firms or commercial bank, hedge funds, mutual funds and retail forex brokers etc.

Participants in Foreign Exchange Market:

Participants in Foreign exchange market can be categorized into five major groups, viz.; commercial banks, Foreign exchange brokers, Central bank, MNCs and Individuals and Small businesses.

• Central Banks:

  • Central banks are extremely important players in the forex market. Open market operations and interest rate policies of central banks influence currency rates to a very large extent.

  • Central banks are responsible for forex fixing. This is the exchange rate regime by which a currency will trade in the open market.

  • Floating, fixed and pegged are the types of exchange rate regimes. Any action taken by a central bank in the forex market is done to stabilize or increase the competitiveness of that nation’s economy.

• Small Business or Investors:

  • Small businesses also use foreign exchange market to facilitate execution of commercial or investment transactions.

  • The foreign needs of these players are usually small and account for only a fraction of all foreign exchange transactions. Even then they are very important participants in the market. Some of these participants use the market to hedge foreign exchange risk.

  • Hedgers: There are many businesses which end up creating an asset or a liability priced in foreign currency in the regular course of their business. For instance, importers and exporters engaged in foreign trade may have open positions in several foreign currencies. They may therefore be impacted if there is a fluctuation in the value of foreign currency. As a result, to protect themselves against these losses, hedgers take opposite positions in the market. Therefore if there is an unfavorable movement in their original position, it is offset by an opposite movement in their hedged positions. Their profits and losses and therefore nullified and they get stability in the operations of their business.

• Commercial Banks:

  • The major participants in the foreign exchange market are the large Commercial banks who provide the core of market. As many as 100 to 200 banks across the globe actively “make the market” in the foreign exchange.

  • These banks serve their retail clients, the bank customers, in conducting foreign commerce or making international investment in financial assets that require foreign exchange.

  • These banks operate in the foreign exchange market at two levels. At the retail level, they deal with their customers-corporations, exporters and so forth.

  • At the wholesale level, banks maintain an inert bank market in foreign exchange either directly or through specialized foreign exchange brokers.

• Foreign Exchange Brokers:

  • Foreign exchange brokers also operate in the international currency market. They act as agents who facilitate trading between dealers.

  • Unlike the banks, brokers serve merely as matchmakers and do not put their own money at risk.

  • They actively and constantly monitor exchange rates offered by the major international banks through computerized systems such as Reuters and are able to find quickly an opposite party for a client without revealing the identity of either party until a transaction has been agreed upon. This is why inter-bank traders use a broker primarily to disseminate as quickly as possible a currency quote to many other dealers.

• MNC:

  • MNCs are the major non-bank participants in the forward market as they exchange cash flows associated with their multinational operations.

  • MNCs often contract to either pay or receive fixed amounts in foreign currencies at future dates, so they are exposed to foreign currency risk.

  • This is why they often hedge these future cash flows through the inter-bank forward exchange market.

• Retailers:

  • The retail market designates transactions made by smaller speculators and investors.

  • Speculators are a class of traders that have no genuine requirement for foreign currency. They only buy and sell these currencies with the hope of making a profit from it.

  • The number of speculators increases a lot when the market sentiment is high and everyone seems to be making money in the Forex markets.

  • Speculators usually do not maintain open positions in any currency for a very long time. Their positions are transient and are only meant to make a short term profit.

  • These transactions are executed through forex brokers who act as a mediator between the retail market and the interbank market. Individual traders or investors trade forex on their own capital in order to profit from speculation on future exchange rates. They mainly operate through forex platforms that offer tight spreads, immediate execution and highly leveraged margin accounts.

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How Swing Trading makes sense for Traders…

What is Swing Trading?

Swing trading are short term strategies to take advantage of price swings, either reversing back to the median or fading a rally.

Swing trading attempts to capture gains in a stock (or any financial instrument) within an overnight hold to several weeks.

Why Swing Trade?

Swing trading involves holding a position either long or short at least overnight and or up to several weeks. The goal is to capture a larger price move than is possible on an intra-day basis. Swing trading assumes a larger price range and price move and therefore requires careful position sizing to minimize downside risk.

• Swing Trading is a strategy that focuses on taking smaller gains in short term trends and cutting losses quicker.

• The gains might be smaller, but done consistently over time they can compound into excellent annual returns.

• Swing Trading positions are usually held a few days to a couple of weeks, but can be held longer.

Swing Trading Strategy

The swing trader’s focus isn’t on gains developing over weeks or months; the average length of a trade is more like 5 to 10 days. In this way, you can make a lot of small wins, which will add up to big overall returns. If you are happy with a 20% gain over a month or more, 5% to 10% gains every week or two can add up to significant profits.

Of course, you still have to factor in losses. Smaller gains can only produce growth in your portfolio if losses are kept small. Rather than the normal 7% to 8% stop loss, take losses quicker at a maximum of 2% to 3%. This will keep you at a 3-to-1 profit-to-loss ratio, a sound portfolio management rule for success. It’s a critical component of the whole system since an outsized loss can quickly wipe away a lot of progress made with smaller gains.

Swing trading can still deliver larger gains on individual trades. A stock may exhibit enough initial strength that it can be held for a bigger gain, or partial profits can be taken while giving the remaining position room to run.

A swing trader looks to trade in liquid stocks/indices which are trending. They generally avoid flat markets, which is why some people call swing trading as Momentum Trading. For a swing trader the basic premise for any trade is that trend is your friend. There are many methods adopted by traders to identify a trending stock, like using the ADX (average directional index), moving average convergence divergence (MACD) or fast moving averages.

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Key Fundamentals To Check Before Long Term Investment In Stock Market

If you are an equity investor what would you typically rely on? You would rely on a research report or on technical calls. Let us leave out technical calls for the time being as our focus is more on long term investments. Long term investing is based on a research technique called fundamental analysis. What fundamental analysis does is to project the cash flows of a business and then discounts these cash flows backwards to arrive at a valuation. The fundamental analyst not only looks at financials of a company but also at non-financial items like the company’s reputation, its brands, its management quality and the unique business advantages that it has created. As an investor, it is not just enough for you to get a fundamental report on whether the stock is undervalued or overvalued. You need to ask some probing questions because it is your money after all!

What are the prospects of the company’s line of business

When you buy a company’s stock you buy for the future. That means you are more interested in the prospects of the company rather than what it has done in the past. Does the company operate in a high growth business or is it a stable business? Does the company make products that have cyclical demand or round-the-year demand? You pay a premium for growth and your stock price appreciates if the company can show growth in the future. That is what matters, first and foremost.

Company growth is fine, but is the company profitable and how are the cash flows?

Growth is not very meaningful if it is coming at a huge cost. Take the case of many ecommerce companies. They are buying market share by giving huge discounts which are being funded by global investors. Obviously, this cannot go on forever and the eyeballs and footfalls must translate into profits for the company. That is what will determine the future value of the company. Gestation is fine, but there is only so much you can afford to wait. Also, profits are not reflective of the actual cash flows of the company. You also need to check the cash flow statements of the company to reassure that the positive cash flows from operations can finance the investments needs.

What is the market perception of the company’s management

This is slightly qualitative in nature but if the company has been around for a long time then the quality of the management is out there in the open. Big Business groups enjoy a premium image in the market because they have taken pains to ensure that their companies maintain the highest standards of disclosure, transparency and corporate governance. This is a key driver of valuations.

What are the risks to the business in terms of competition

Competition can arise in a variety of ways. There is product competition that can arise from better and cheaper products in the market. Alternatively, it could be disruptive products.

Does the company speak the truth about its performance

This is partially covered by the point on management quality but this also pertains to the actual executive management of the company. You surely do not want to invest in a company that can throw up negative surprises at you in the future.

What is the moat that the company has created for itself

Moat is a sustainable advantage. It can be in the form of high margins, unique patents or even in the form of market leadership. Moats are important because they ensure that the company is able to hold on to its growth and its operating margins even in tough market conditions. Generally, companies with a moat get a more attractive valuation in the market.

How will the company finance its future outlays

This is especially true for companies that have massive plans for expansion or diversification in the future. The question is how would these programs be funded? If the funding is through equity then you need to be prepared for dilution of earnings. If we are looking at funding through long term debt, then we are looking at financial risk. Remember, expansion and diversification is integral to growth. What you need to ensure is that it can generate cash flows to justify these decisions.

Are the company’s customers individuals, corporates or government

You may wonder why this important but it determines your payment cycles and the promptness of payments. Therefore it is crucial to your working capital cycle. For example, individual customers are broadly upfront customers and hence cash flows are not a problem. Credit terms become relevant when you have corporate and institutional customers. If it is a power stock that has government clients then normally government problems tend to get transmitted. Customer profile matters a lot!

How much of the promoter’s stake is pledged

In the last few years we have seen sharp correction in stocks due to this very reason. When a large percentage of shares of the promoter are pledged, they make the stock vulnerable to bank selling in the event of a margin call. Always prefer companies where the promoter pledges are low.

Does it fit into my long term goals

Finally, ensure that the stock fits into your goals and your equity/debt mix. If the investment in a stock is skewing your portfolio profile or adding more risk than warranted, you can just give the stock a miss. If the stock does not into your long term goals then the stock is not for you.

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