Advantages of familiarising with online trading using a demo account

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Using a financial services demo account prior to initiating trades with capital is very useful in ascertaining the level of risk management needed when trading securities and financial products. Demos provide detailed instructions on trading mechanisms such as financial spread betting, and offer trading simulations using a synthetic account balance that costs nothing. The simulation benefits account holders by safely developing knowledge of the trading process and performance prior to utilizing real capital.

Optimisation

Since online financial service firms provide an exceptional financial opportunity in terms of liquidity and gearing, becoming familiar with the trading process is a good idea when optimising capital and limiting opportunity cost. For instance, a demo account assists with the development and implementation of hedging techniques such as betting on inverse spreads to lower risk or hedge trade positions. Additional optimisation tools include stop loss orders and trailing stop orders, the latter of which automatically ensure profits are acquired before price movements prevent that from happening.

Technology

The technology made available through online financial services firms is powerful. It enables traders to access numerous securities markets and make a wide range of monetary transactions relating to those securities. Analysis tools, stock screeners and real time order execution mechanisms equip account holders with a means to better understand how to capitalize on price movements within different asset classes. such For example, a spread betting demo and technical analysis tools including candlestick charting allow traders to zoom in on price movement patterns and trading procedures.

Features

Being aware of technicalities that cause price changes is also a benefit of familiarizing with trading before trading in real life. To illustrate, if a currency price quote gaps up or down due to a sovereign credit downgrade, knowing how to protect against this ahead of time with specific orders such as a good for day (GFD) buy order or guaranteed stop order is useful. Trade features including automatic buy and sell orders that execute when specific price targets are reached are also an asset when planning for market contingencies.

Gearing

When using margin or credit to make trades gearing transactions amplifies gains and losses. Using a demo account develops an awareness of how easily both scenarios can happen, and evolves trading ability that helps facilitate more effective decision making. For example, key technical factors such as overbought and oversold indicators, in addition to underlying financial fundamentals including issuer solvency and asset liquidity are all legitimate factors to consider before gearing a transaction. Free research services that accompany trading platforms enable account holders to better assess the risk of gearing their transactions.

The hands behind currency valuation

Currency valuations affect a lot of things and are themselves influenced by still more variables. The strength of a nations' labor force in terms of skill, marketability, productivity and economic growth builds confidence in a currency. The Yuan Renminbi or RMB is an example of an emerging global currency that is increasingly being used as a reserve currency by other nations according to CNN International.

Image source: Fran Hogan

Government fiscal policy, like central bank monetary policy also plays a role in the valuation of currency. Sometimes this is done to the detriment of an economy per Hedge Fund Manager David Einhorn in a New York Times Op-Ed.  More specifically, Einhorn states our government's use of cash basis accounting understates the actual financial obligations taken on by an increasingly unsustainable cash-flow. Moreover, it is the money made from the hands of a nation's people that fiscal decision makers are themselves handling. 

• Federal Reserve: $9.545 trillion in checking, saving and M.M.F.s
• Issues in Political Economy: Equity rises increase currency strength
• Commodity prices rise with dollar depreciation per the FAO
• Countries de-value currency to boost exports per The Economist
• 33-50 percent of post Civil War currency was counterfeit per FBSF
• The $ symbol is believed to originate from the Spanish Dollar

Monetary policy also plays an important role in currency valuation. Since central banks can change money supply, they can also change the value of money by increasing or decreasing the amount of money in an economy. Altering money supply enhances economic performance at best and is an economy eroding cancer at worst. When the value of money erodes or loses purchasing power, inflation protection helps preserve net worth and becomes useful in long-term financial planning. The valuation of different currencies represent various nations' economies and competition between those economies.  

Causes of Fluctuation in the Value of the Dollar

Image source: Themanwithoutapast. US-PDGov

U.S. money supply is measured using four measurements labled M0 through M2, each indicating different kinds of currency holdings. These values in addition to inflation as measured by the Consumer Price Index (CPI), asset appreciation connected to consumer sentiment and economic performance can lead to significant fluctuations in the value of the dollar.

Complete article link: http://www.ehow.com/info_8234404_causes-dollar-appreciation-depreciation.html

What is currency manipulation?

Currency manipulation is the influencing of currency valuations in proportion to the value of other currencies, and in terms of trading price bid ask spreads which is the difference between selling and asking price of a currency pair. Currencies change in value daily based on market conditions and foreign exchange transactions. However, these changes can be manipulated directly or indirectly through governmental decision-making, monetary policy and institutional market based strategy.

Both the United States and China have been accused of manipulating their currency in recent times. More specifically, China limits how much its currency, the Yuan-Renminbi, appreciates in value only allows it i.e. the Yuan-Renminbi to fluctuate a certain amount in value thereby influencing both national currency, Gross Domestic Product and trade balance. 

In the case of the United States, monetary policy that significantly affects currency value has been considered a direct effort to debase the dollar. However, U.S. officials such as Treasury Secretary, Timothy Geithner have denied this claim stating that a devalued currency is not the intention of liquidity, but rather a bi-product of economic stimulus.

The above examples are indicative of trends within currency wars. This occurs when multiple nation-states are believed to be in competition against each other via the price of their currency. A potential consequence of global currency manipulation that motivates the currency war in the first place is economic strength linked to high exports. 

Since exports often increase when the prices of goods and services are cheaper, the advantages of a lower valued currency can be profound. Thus, currency manipulation may be more likely during periods of global economic struggle rather than prosperity. Countries may compete for lower currency prices by either directly pegging their currency to another via political means, or by altering the money supply through monetary policy.

Financial institutions may also manipulate currency by trading both ends of currency transactions and betting ahead of the market. For example, ABC Financial Intermediary is a financial institution that facilitates foreign exchange for individual clients. Via this information, and with direct access to large amounts of financial leverage, company's can essentially see what is going to happen in a market before it actually happens and make currency trades that allow them to be profitable, and limit the movement of currency prices to their advantages. This is more likely to be the case with unregulated foreign exchange brokers which is a potential pre-cursor to currency manipulation.

Enforcement of currency manipulation is sometimes weak according to the Congressional Research Service. This is because large international financial institutions do not always have the power to require countries to alter their national monetary policy. Similarly, the Congressional Research Service also state the World Bank, another large global financial intermediary does not have a large scope of authority in terms of subsidizing specific goods that in effect has a similar function as devalued currency. Since nation-states are sovereign entities, collaboration and agreement regarding monetary policy may be one of the few effective ways to avoid national currency manipulation.

Sources: 

1. http://bit.ly/c2iLL5 (Congressional Research Service)
2. http://bit.ly/bP5dIO (Yahoo Finance)
3. http://bit.ly/9qQRyn (National Futures Association)

A Look At The Currency of Pakistan

The currency of Pakistan is the Rupee that consists of both coins and paper notes. 5 denominations of paper rupees are currently in circulation with the highest note value being 5000 rupees which is worth about $60.40 US dollars at the time of this article (09/09) For a current exchange rate of the Rupee into other currencies the following currency converter and official currency valuations can be consulted. This article will look at the currency of Pakistan in terms of its history, and factors affecting its valuation.

Pakistan's currency

The circulation of rupees within the Pakistani economy is centrally controlled by the country's state bank and multiple denominations of the Rupee bank notes have a picture of Muhammad Ali Jinnah (2) who was an important figure in Pakistan's independence from India and Britain. Under Jinnah's rule, the Rupee was introduced as Pakistan's currency in 1947. Following 1947, the Rupee underwent some changes including the introduction of higher denominations.

In the years between 1995-2008, the currency of Pakistan devalued almost 200% against the US dollar.(2) This devaluation of the rupee has lowered the financial buying power of Pakistan. The current inflation affecting the rupee is also a cause for concern because it lowers the buying power of the rupee. The Pakistani rupee is affected by multiple variables as does any currency, some of which are listed below with recent trends as reported by tradingeconomics.com. (4)

•  Exchange valuation: 82.96 rupees per USD (Negative)

• Inflation: 11-13% (Down)

• Interest rate: 14% (High)

• Central bank reserves: (Down)

• Unemployment: 5.2% (Down)

• Trade deficit: $1.15 USD (Negative)

• Government budget (-$.842 billion USD)

Financial factors affecting the Pakistani Rupee

Several factors influence the value of the Pakistan's currency; these factors are 1) economic conditions, 2) political conditions, 3) global finance and 4) State financial management. As mentioned above, the rupee has devalued significantly in the last 15 or so years. This is related to several of the following factors that may either have contributed to the decline in the rupee, been a result of the rupees devaluation or a combination of both. For example, even though Pakistan has a positive Gross Domestic Product in 2009, it still has inflation in the double digit, and deficit spending close to 6% of that GDP according to www.economywatch.com (3).

• Lower GDP

• Political conditions

• National credit rating

• Declining Foreign Direct Investment (FDI)

• Decreased national fiscal liquidity

The combinations of economic, political and fiscal circumstances within and outside Pakistan affect the Pakistani Rupee. The net affect has been a decline in the value of the rupee. If efficient markets hypothesis is correct, this is because market conditions have been factored into the value of the currency. Since those market conditions include economic variables, the implication is the Pakistani economy is performing, or is forecasted to perform worse.

Forecasting the Rupee

It is impossible to say with absolute certainty how the currency of Pakistan will be valued in the future, but what can be estimated is how it might be valued given economic and national trends. For example, if the Pakistani economy reduces its trade deficit by converting its labor force into a service or manufacturing economy that yields more net GDP with the same labor, then the spending power of the rupee may rise all other variables held constant.

The difficulty in forecasting currency valuations such as the rupee is adequately taking into account market and economic conditions and trends that can affect valuation. If current conditions are any indicator, the rupee may continue its decline due to a shrinking GDP, low money supply, high inflation, national liquidity etc. Economic shifts in the management of the countries finances and labor force may yield affects on the rupee, as could global reinvestment into the Pakistani economy.

Summary

The currency of Pakistan is the Rupee, created after the end of World War II, and following the independence of Pakistan. The Rupee consists of both coins and printed notes in several colors that contain the denomination of the currency and image of Muhammad Ali Jinah on the currency. The rupee is exchanged in global currency exchanges and has recently experienced heavy devaluation against the dollar.

According to a 2008 Pakistan country report, Pakistan faces economic challenges such as poor infrastructure, high cost of capital, political problems, and inflationary pressures such as the cost of oil.(5). On the other hand, growth in neighboring country's such as China and India could help the Pakistani economy if trade, economic policy, investment etc, improve. Pakistan's ability and capacity to manage and guide its economy seem to be a major component in assessing the strength of Pakistan's currency.

Sources:

1. http://coinmill.com/PKR_calculator.html#PKR=5000.00
2. http://www.scribd.com/doc/14144693/Devaluation-of-the-Pakistani-Rupee
3. http://www.economywatch.com/economic-statistics/country/Pakistan/
4. http://www.tradingeconomics.com/Economics/Unemployment-rate.aspx?symbol=PKR
5. www.pakboi.gov.pk/.../Pakistan's%20Economic%20Challenge.pdf