Hi Pancho,
I’ll respond within your text IN CAPS:
Hey Norm.
This thread has been very thought provoking. A few things came to mind I want to bounce off you.
I have no knowledge or experience with this type of strategy, NEITHER DO I. so at the expense of possibly make a fool out of myself, here are some things that came to mind.
You mentioned the AUD was taking a beat down and the trader benefited by opening an acoound in USD. THAT’S WHAT MYRONN SAID.
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Does that mean he was long on the AUD/USD and an account in USD acted as a hedge.
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Or was he short on the AUD/USD and trying to compound gains by having an account in USD. I DIDN’T GET THE IMPRESSION HE WAS TRYING TO GAIN BY CHANGING HIS CURRENCY, BUT THAT HE DID IT FOR SOME OTHER REASON. TO COMPARE IT TO A NORMAL FOREX TRADE, IF HE EXPECTED AUD TO DROP IN RELATION TO USD, HE WOULD BE GOING SHORT.
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Or was he strictly exchanging currencies and not trading? THAT WAS MY IMPRESSION.
You also mentioned trying to benefit by converting to a currency that is gaining over another currency, repeating this process untill finally you are able to convert to your original currency for a net gain. I WONDERED ABOUT IT, BUT BASED ON MYRONN’S EXPERIENCE, IT CAN BE DONE IF ONE MAKES THE SWITCHES AT THE RIGHT TIME.
- If the AUD/USD is falling because the USD is gaining in relation to the AUD, depending on the situation, why not just short the AUD/USD? IN A NORMAL FOREX TRADE, YOU’D WANT TO RISK ONLY A PORTION OF YOUR ACCOUNT; BUT BY SWITCHING ACCOUNT CURRENCIES, YOU’D BE SOCKING THE WHOLE SHEBANG INTO YOUR BET. IN A NORMAL FOREX TRADE, MOST PEOPLE WOULD SET A STOP LOSS, BUT BY SWITCHING ACCOUNT CURRENCIES, THERE’S NO STOP LOSS AVAILABLE.
Example:
Lets say the USD and the AUD are both strengthening but the USD is gaining in relation to the AUD. In that situation, its probably better to convert from AUD to USD currency YES because the net gain would be greater than simply shorting the AUD/USD by virtue that you remove the AUD from the equation. HOW COULD IT BE REMOVED FROM THE EQUATION? WHETHER YOU GO THE NORMAL FOREX WAY OR SWITCH ACCOUNT CURRENCIES, YOU’RE STILL HOPING ONE CURRENCY GAINS IN RELATION TO THE OTHER. I TRIED TO CONVEY THE TWO POSSIBLE WAYS OF DOING IT (1. NORMAL FOREX, AND 2. CHANGING ACCOUNT CURRENCIES.) I REALLY DON’T KNOW THAT I COULD ADD ANYTHING.
Or would that even make a difference because the net difference in value of the 2 currencies remains the same regardless? IF THE CURRENCIES RETAIN THE SAME RELATIVE VALUE IN RELATION TO EACH OTHER, WHICH WOULD BE VERY UNLIKELY, THEN THERE WOULD BE NO NET GAIN OR LOSS.
On the other hand, if the USD is gaining big time in relation to the AUD because the USD is strengthening and the AUD is weakening at the same time, wouldnt it be better to just short the AUD/USD. The net gain would be greater because you benefit from both the rising dollar and falling australian dollar as opposed to just benefiting from a strong USD. THE GAIN WOULD BE MUCH GREATER BY EXCHANGING CURRENCIES, BUT YOUR WHOLE ACCOUNT WOULD BE ON THE LINE INSTEAD OF, FOR EXAMPLE, 2% OF YOUR ACCOUNT.
Or would the net gain be the same regardless if your trading or just exchanging currencies? SMALL RISK, SMALL PROFIT OR LOSS. RISK YOUR WHOLE ACCOUNT, TREMENDOUS GAIN OR YOU’LL LOSE YOUR &8^$!
I know there are many other factors involved and please forgive my ignorance on the subject.
THE WHOLE CONCEPT IS NEW TO ME ALSO. I JUST THOUGHT IT WAS WORTH THINKING THROUGH TO GROW IN GENERAL UNDERSTANDING OF TRADING CONCEPTS. MOST IMPORTANTLY, I, FOR ONE, AM NOT ABOUT TO TRY IT. MUCH TOO RISKY! AND I WOULD ADVISE OTHERS NOT TO TRY IT UNLESS THEY REALLY - I MEAN, REALLY - KNEW WHAT THEY WERE DOING!
TAKE CARE,
Norm