9 June 2008

Forex Trading Choices of the Past Year - The Best Currency Exchange Investments Since April 2007


The forex trading market is the biggest market on earth, with transactions amounting to $3 trillion a day. It is also one of the most complex markets, because there are dozens of currencies to trade against one another, and hundreds of markets all over the world in which forex trading takes place. And since it is global, it all happens 24/7/365, because it's trading hours in about a third of the world at any given time. It's so complex and so full of opportunities and risks, it's overwhelming.

In my previous article I described some of the most common mistakes people make when setting their foot in the forex trading market. Here is another one even the professional traders make, not to mention the average person like you and me: they stick with the known and well-established. The US dollar, the euro, the British pound, the Japanese yen. The Chinese yuan is becoming a hip currency to trade in as well.

It's easy to understand why traders, professional and amateur alike, concentrate on this rather small amount of currencies. There are two main reasons for that.

One is these currencies represent the superpowers with the largest economic power on the planet. But are they a better investment than other, smaller, rather unknown currencies? Not quite.

The other reason is that this market is so complex it's tough to fathom it all. Nobody can really follow the large amount of currencies out there, so forex traders - professional and amateur alike - stick with the familiar. As a result, they miss opportunities in relatively unknown currencies of smaller countries, some of which represent growing economies and do better as an investment than the familiar superpower currencies. You should use automated forex trading software to recognize them, it's just too much information for a human to process without one.

So which ones are they? This is what this article presents - the currencies that made the most profit to the forex traders who thought outside the box and dealt with them. During the past year - from April 2007 to April 2008 - they did better than the dollar, the euro, the pound and the yen. My bet is that even if you trade forex as a second income or as an investment, and even if you trade forex for a living, you haven't traded most of them. In fact, my guess is that many of the readers haven't even heard of some of them.

So here they are - the forex trading stars of the past year. The foreign currencies that made the most profit for their investors.
The Moldovan leu - Moldova broke away from the old Soviet Union in the early nineties. It was, and still is, one of the poorest countries in Europe - but they are a far cry from where they were just a decade ago. Massive privatization and liberalization efforts by the Moldovan government, with help from the International Monetary Fund and the World Bank, have kept the Moldovan economy growing steadily over the past few years, with a 6% growth rate in 2007. The leu has increased its value by almost 22% against the US dollar.

The Slovak koruna - Slovakia has gone from a communist-centralistic economy to a free market over less than 20 years since the breakup of what was once Czechoslovakia. Today, it is a member of the European Union (although it chose to keep its own currency) and the OECD, the major union of democratic, free market countries. Slovakia's economy is booming, with a growth rate of more than 10% in 2007, and a dramatic drop in unemployment rate to less than 8% - about a third of what it was in 2001. The koruna came in a very close second since past April.

The Brazilian real - We got used to hearing the stories of plummeting Latin American currencies. That is outdated, at least in Brazil. It has the largest gross domestic product - nominal and per capita - in Latin America. From a broken-down economy which made the International Monetary Fund to loan it over $30 billion in 2002, it recovered, paid back the entire loan in 2005, and this year harbored an influx of foreign investment which made the real skyrocket against the dollar.

The Swiss franc - OK, here's one currency everyone knows of, from a country everyone knows of. Switzerland has one of the strongest economies in the world, and it seems to have had a stable and growing economy forever, backed by its famous banking system. Even today it has the 6th largest gross domestic product per capita in the world. No wonder they chose not to join the European Union which is all around them, and they keep choosing so in recurring referenda. The Swiss franc has risen over 20% against the dollar since April 2007.

The Norwegian krone - Norway, yet another Western European country which chose not to join the Union, has the 3rd highest gross domestic product per capita in the world. It has a mixed economy with the government owning a share of major corporations in its most important sectors, such as oil export, and controlling more than 30% of all public companies. It's the 3rd biggest oil exporter in the world (but is not a member of OPEC).

The Croatian kuna - Croatia survived a painful breakup from what used to be Yugoslavia in the early 1990s, with a war that tore through the entire country - a war people tend to forget, as it was overshadowed by the later wars in Bosnia and Kosovo. Croatia has demonstrated a marvelous recovery, becoming a booming tourist attraction among other things. The economy is growing steadily, foreign investment is pouring in, and unemployment rates are plummeting. Croatia still has a lot of potential for improvement, and it's working hard to resolve some administrative issues with a goal in mind - to join the European Union this year.

The Pacific franc - Did you even know there was such a currency? The Pacific franc, or the franc CFP, is used by some of the French colonies in the Pacific, such as New Caledonia and French Polynesia. The economics of these colonies vary (for example, New Caledonia is rich in minerals and is highly self-sufficient, while other colonies rely heavily on financial aid from France), but their joint currency did very well for any forex trader who had heard of it and invested in it.

The Israeli shekel - Now that is quite extraordinary. There you have a country in eternal dispute, where it seems a war has been going on forever - and it maintains a growing, vibrant economy, full of ideas and initiative (for example, the 2nd largest number of start-up companies in the world, many of them in the high-tech sector). While still maintaining some of the centralistic aspects its economy had when it came to existence in the late 1940s, Israel has gone through massive liberalization and privatization over the past two decades to allow this situation to happen. Israel's economy has grown by 8% in 2006 (growth has decreased in 2007, but was still rather high at 5.3%) and has the 22nd largest gross domestic product per capita in the world - which I find amazing, considering its security issues and its being extremely poor in natural resources. The shekel has increased in rate by about 17.5% over the US dollar over the past year.


So what am I saying here? first of all, let me start by what I'm not saying. I'm not saying you should, or should not, invest in these currencies. There is no guarantee they will continue to grow, and this article does not constitute a suggestion to invest, or not to invest, in any of these currencies - or other currencies - in any way, shape, or form. I want to be very clear on that.

All I'm saying is that this article is just a demonstration of how complex and diverse the forex trading market is, and why it is so difficult even for a professional forex trader - let alone ordinary folk like you and me - to figure it all out. Some good automated forex trading software can help you with that.

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