10 Million per Week

[RealFX]

Is what a report I read from the reserve bank of Australia says Forex speculators take from the market. The report also said that speculators were profitable in 60% of weeks they traded. The author argues that we are paid a risk premium for carrying the risks in this market and/or that we can accurately predict currency movements. Short term movements, however, were not predictable according to veteran traders he surveyed.

After reading this, I wondered more and more about zero-sum and the claim 95% of people loose. That phrase always reminded me of starting a buisness(90% fail, yet the U.S. has millions of businesses).

So, if new money is pumped into the markets, then speculators take home should grow and when the market shrinks, we won't have as massive a pool. But since the Forex is expanding, then how can it be zero-sum?

[mahras]

Speculators basically make money from companies who are hedging their positions. Most of the liquidity in the FX markets is NOT from people seeking absolute returns but mostly from trasactions by banks and corporations moving money from one country to another or looking to hedge their profits. So when the report says 60 million goes to speculators it means the 10 million is taken out of the market when speculators make profits off of institutions moving money.

As for the 95% that means that 95% lose while the 5% make the 60 million.

[RealFX]

If we assume traders trade 52 weeks a year, then by those numbers they pull 10 million out 31.2 times, whch is 312,000,000.

Now, I wonder what is a speculator. A bank with a 100,000,000 position could be a speculator... or am I wrong?? It would be nice if 312 million fell to average traders!!

[KaliKali]

I read this earlier today and it may answer some of your questions:

http://www.biz.uiowa.edu/class/6f130/lect_06.ppt.


My take on it was that speculators play an incredibly important role in the Forex markets and it seems to me that may be partly why the government is leaving it as unregulated as it is, to provide incentives for increased speculation which gives governments and banks increased liquidity, while most of the risk is assumed by speculators. I may be wrong on that, but that's what I took out of it.

Kali