Page 133 - Ultimate Guide to Currency Trading

This short EUR/CHF will allow you to capture the rush of risk assets (EUR) into the risk adverse
asset (CHF). The combination of going long the USD and the Swiss franc and shorting the EUR and the
Swedish krona will go a long way in keeping your account protected and profitable during times of
economic uncertainty such as when the world's stock markets fall.

Developing Countries/Exotic Currencies

Once you have traded risk sentiment by going long and short the safe-haven currencies, then you can
take some of your margin and move on to exotic currencies. The currencies of developing economies
can be profitable, as they usually offer a high rate of interest and can therefore act as a carry trade.
Additionally, their return can be independent of traditional money centers, and therefore can act
independently of the good or bad fortunes of the United States, the United Kingdom, Germany, and
Japan. Exotic currency trades can allow you to capture the sometimes phenomenal growth of
countries such as Brazil, Turkey, Hungary, and Poland. These are relatively stable countries that are in
a pattern of growth that is independent of the growth rates of the more mature economies such as
Japan and the United States.

You can capture the growth-rate differential between the United States and Brazil much like
you can capture the interest rate differential between AUD and USD. In fact, you could capture a huge
interest differential, as you could borrow USD at 0.5 percent and use it to buy Brazil reals earning 10-
plus percent. This type of trade would allow you to capture simultaneously the growth and the carry
trade of the currencies. If Brazil were to heat up economically still more, then you would benefit from
additional rate hikes, which would boost the difference of the USD/BLR even further, giving you added
gains.

Where do I look for exotic currency trading ideas?

You can find out what currency pairs your Forex broker offers and look up the symbols
QUESTION on the Internet. Once you see what pairs are available, then perform research on those

countries' central bank websites to search out trading ideas. Of course brokers' reports
can certainly help you know what currency pairs are likely to work out well.

Another good trade is to use euros to buy the Polish zloty. Poland is a strong industrial and
agricultural economy and trades primarily with the euro-bloc countries. The PLN has grown over 20
percent against the euro in the past three years. Poland would like to become a European Union
member, and it continues to be a favorite of the currency brokers in relation to other developing
economies. The PLN offers a good compromise between currency trades, stability, and economic
growth. Its desire to enter the euro bloc is an added bonus.

A third and safe trade would to go long the Czech koruna, CZK against the euro. The Czech
National Bank has historically done a good job of keeping its inflation target around 2 percent, and has