FOREX Trade Calls Based on Volatility Appetite

US Equities such as the S&P500 known as the "Broader Index" correlate well with our FOREX cross rates involving the Japanese Yen and Swiss Franc. We'll take just a minute to explain how the world turns using these two popular funding currencies with respect to our trade calls made @ FOREX TRADE CALLS BLOG.
The Yen and Franc both have a low overnight lending rate which means their currencies are cheap to borrow. If a speculative trader is interested in buying an instrument such as oil or gold it would be wise to buy that oil or gold using a cheap currency rather than an expensive one. Expensive currencies could be considered currencies with greater than 5% overnight lending rate such as the Aussie Dollar, New Zealand Dollar or Great British Pound. All of which are over 5% and cost much more to borrow than Yen or Francs. If we look closer to the Yen and Franc we see one could buy Aussie Dollars with Japanese Yens and enjoy a positive interest trade which would make money daily on the overnight interest differential. If the interest differential at the time is Yen at 0.5% overnight lending rate vs the Aussie currency at 7.25% overnight lending rate; the effective gain is 6.75% per year. When you are trading millions of dollars or pounds per click this adds up very fast and can put a dent in profits or could produce windfall profits for your specific trading system. The term to describe buying and holding Aussie Yen is "The Carry Trade". This implies buying a high yeilding currency and simultaneously selling or borrowing a low yeilding currency. Many people focus only on currencies for this strategy when it actually works with commodities as well. When banks and hedge funds around the world feel the markets are a safe place to speculate on appreciating commodities or currencies they will sell the Yen or Franc and buy the appreciating currencies or commodities.
Be sure to visit our other blog for intrady trade calls.