Quote from pitz:
So what's the moral of the story? Is there some sort of trade you recommend we implement, in order to take advantage of a market that is rising in nominal terms, but losing value (along with the currency) in real terms? Would borrowing short, and investing into the market hedge out the currency devaluation?
World GDP is $70 Trillion every year. So Forex capital is also $70 Trillion every year. Everyday food and other products and services everybody buys is basically Forex because forex means currency trading.
Forex transactions are estimated 1,100 Trillion every year or $4 Trillion per day.
Who Creates Billionaires? Stocks Or Forex
Example, if Microsoft shares are worth $25 each today so Bill gates is worth $50 billion. After 1 month microsoft shares are worth $33 because millions of new investors purchased/invested microsoft shares. So now Bill gates will be worth $60 billion (estimated). To my understanding owners of stock exchange listed companies have/own 50% shares of their company.
Now consider Forex trading.....
I think EUR/USD transactions are $1 Trillion per day. If majority of forex traders think today Euro is strong they will buy/invest Euro and when they close the deal, they earn profits. Estimated $500 billion will be traded in Euro per day but here no billionaires are created. Forex traders share the profits. I think the value of US dollar and Euro also does not change because of daily forex transactions.
But in stock markets a investor will invest $10,000 and when the shares increase 50%, he earn $15,000. But the company owner earns $500 million or $1 Billion because millions of investors have purchased the shares of his company.
So who creates billionaires, Stocks or Forex?
If the stock market goes up that much, inflation/currency destruction will destroy buying power.
In Turkey, 1982-2005, the stock market went up over 2,000,000%... about 66%/yr compounded. For those "lucky" enough to have been fully invested for the entire ride (and not accounting for taxes)... they still lost 98% of their buying power in the devaluation.
Just before the devaluation in 2005, a cup of cafe coffee cost 3,000,000 Turkish Lira. After the devaluation, a cup of coffee cost 3 New Lira... the devaluation was 1,000,000:1, lopping off 6 zeros.
My point is that average people say billionaires have $50 billion or $70 billion.
But owners of stock companies start their business and get it listed on the stock exchange and they get busy with their daily business. Then millions of small investors purchase shares of the company and after 8 to 10 years, the owners have $30 billion or $50 billion whereas individual investors have $10,000 or $100,000 or $1 million or $1 billion.
But in forex trading only the forex traders earn money and profit even when forex transactions are $ 4 Trillion per day or $1,100 Trillion per year. No billionaires are created from other people's investment for 4 or 5 years in forex. If some forex traders has long-term profitable forex trading system they can become billionaires for forex trading.
So millions of investors create few billionaires in stocks and they say there are 1000 or 2000 billionaires only.
In forex trading, everybody earns big money from indvidual successful trading. Nobody helps anybody in becoming billionaires
The value of a currency is arrived/detetmined by the business and trade performance between 2 countries.
I agree, daily forex transactions also changes international currencies price/value because the price change every second or every minute.
Yes, but by whom does this value get determined? By investors, one time they seek risk, one time they are risk averse. For example, if investors are seeking risk and see that the australian economy is just booming, they will convert their cash into australian dollar to be able to buy stocks in that economy and participate in the economic boom. These conversions determine the currency value more than anything else, and they are called money inflows and outflows.
So, in the end, it's still the investors who push the currency market. In forex trading, the whole country/nation benefits because the currency value has reached new levels from many years of business and trade performance and investments.
But in stocks only few billionaires have $40 Billion to $70 Billion from many years of investors investment.
I am saying that in stocks, millions of investors create monsters and they say "who created the monsters". I mean, in stocks, millions of investors create few billionaires and they say "who created billionaires". The same can be said for Real estates also.
No monsters are created in forex trading. The whole country/nation benefits and profits are from individual successful trading performance.
George Soros, who became a billionaire due to currency speculation.
And I explained you the reasons why also, if you invest in a currency, millions of investors are pushing the market (money in- and outflows). Don't know what more you need? And what about all the hedge fund managers that were involved in the carry trade. Most of them get hundreds of millions or billions in bonuses, due to their performance in the markets. And by the way, as I said before, you can't compare people who build companies with currency investing.
You have to compare stock investing with currency investing. If you wanna compare building companies with something, then it might be with oil. The ones who have it are dependent on the millions of speculators, consumers & investors who need oil for whatever reasons. Only due to them did the people in control get filthy rich with billions of dollars lying around at home.
Take a look at some hedge funds & you will find a mixture of stock & forex traded along with other products, so to answer that question may be somewhat hard. From reading the Market Wizards I remember one trader that specialized in trading currencies only. The name Bill Lipschutz might offer some clue. I am sure there are others, but he is just one that I recall.
If I am correct forex deals are closed everyday or after few days and profits taken.
Whereas in stocks the investment continues for 10 or 30 years and a $10 stock reachs $300 to $400. The same applies to other investments also.
The company owners should raise/collect money from investors from IPO but they should not list the company on stock exchange.
Example, if company owner needs $5 billion they should launch an IPO and collect $5 billion for their company and continue their business but the share should not be listed on stock exchange.
Company owners should pay dividends only to his shareholders. Owners should earn money from hard earned and slow profits and not fast rise in share value.
Shares should be similar to bank loans and company owners have to pay dividend otherwise they will be penalised.
When the company is listed on stock exchange, the owners get away with the excuse that shareholders can earn extremely high profits from stock exchange so dividends are not guaranteed.
When company owners collect $10 billion or $20 billion from IPO they do not guarantee any profits as security whereas bank loans needs security and interest guarantee. Surprising, Trillions of dollars are collected without any security and guarantee and when people lose money they start crying.
I never understood the concept of stock exchange shares trading.
