Tuesday, September 11, 2007

FINANCEHYPE: Little Old Ladies Making The Pros Look Like Fools

Back in the old days, before financial information was available to the mass market, there was no such thing as retail foreign exchange investing. Unless working on the front lines of the financial wars (i.e., the markets), the only exposure the vast majority of people had to Forex was figuring out how to pay for stuff in the local currency when on holiday abroad. Use cash, and one had to pay a hefty transaction cost (poor rates plus fees) at the change booth. Use plastic, and one got shafted by his bank 6 ways from Sunday (side note: if you used a Visa, MasterCard, or Diners Club for a foreign transaction between 1996 and 2008, you got screwed - follow that link).

Thankfully, a confluence of several factors has brought about significant changes to the Forex markets, to which your not-so-friendly local foreign currency booth and/or bank are closely linked. In my opinion, this is A Good Thing (see Euromoney's theory on why this is happening).

Recently, Japanese housewives - who, on aggregate, have significant investable assets thanks to their disciplined savings habits - have begun to get in on the action. The funny part is that they're confounding predictions made by the so-called experts at firms like UBS and Deutsche Bank, without question two of the largest and most sophisticated investment banks/financial institutions in the world.

The main tactic these retail Forex investors are using is the carry trade. It's fairly simple in principle, but if you have no idea what this is, here's a basic explanation and a detailed trading strategy. Don't you wish you paid closer attention in economics class now? Or better yet, took a few finance electives?

Bloomberg has more on this example of how new technology has helped empower individuals. And by the way, nothing is keeping you from getting into the game either - although if you live in Switzerland, you already know that your bank will happily sell you whatever currency you want at great rates with no fees... we should all be so lucky. Walk into nearly any retail bank branch in the States, even if you're a customer, and ask them for Euros (or Swiss Francs, or Japanese Yen, or British Pounds, or ...) and see what happens. Most likely you'll only get a blank expression from the teller.

1 comment:

ad said...

If only I had the disciplined saving habits of a Japanese housewife.