Page 160 - Ultimate Guide to Currency Trading

You will then invest the remaining 10 percent in your FX account. You will use this money to

trade in a conservative fashion of both capital gains and interest-earning carry trades to form an
accent to the total return of your bond portfolio.

With conservative investing you can still trade to capture the risk sentiment of the world's
stock markets and capture its gains; you would, however, be capturing these gains through proxy, or

risk trades.
You can set up your portfolio to be in 90 percent T-bills or CDs while the remaining 10 percent

is in the FX market earning you solid returns. In this way you have the ability to earn gains much like if
the FX portion were invested in S&P 500 index options. This is precisely what you will be shooting for

with your FX positions: you will be attempting to duplicate the effect on a portfolio of investing 10
percent of your assets in index options. With the Forex proxy to options, you can forego the large

account balance and complicated trading that usually goes with options trading. Additionally, you will
benefit from the fact that Forex trades do not expire, and can be carried on for months and years. This

is not the case for options: these instruments usually expire within a few months at best. Lastly, there
is the benefit of capturing worldwide market gains with properly placed currency trades. This includes

the long AUD/USD and short EUR/SEK, among others. Finally there is the diversification benefit that
you can achieve by investing and trading in three, four, or five (or more!) currency pairs at the same

time.

You might try to capture any big gains in the U.S. and European markets by going long
AUD/USD, short EUR/SEK, and short USD/NOK. You could finally mix it up a bit and go long a
developing economy nation such as Poland zloty (PLN), or the Czech koruna (CZK), against the euro.

These currency pairs carry a bit of security with them as well as growth potential. The reason is that

each of the countries behind these currencies is making an effort to run the countries' fortunes in a
conservative or otherwise well-run manner. Some are making efforts to pay down debt; others are
running surpluses. Still others have stronger economies than their counter currencies. All of these

reasons add up to make these currency-pair plays really smart and also well diversified. If you are

looking to capture any upward gain in the world's stock markets, then these four trades are for you.
Just 10 percent of your portfolio is enough to capture big gains and add to the otherwise low

return of your T-bill investment. You could get creative in adding safety to your trades by limiting your
exposure to only 25 percent of your available margin as opposed to the usual 33 percent of available

margin. You could go one step further and divide that quarter into fourths, with each pair getting
equal exposure of one fourth. You can get creative at this point and add more to the basic trades such