Cyprus-Forum.com

[CrookedRiverGuy]

Do speculators only speculate in falling currencies?

Did you literally mean what you just wrote?

[miltiades]

Do speculators only speculate in falling currencies?

Did you literally mean what you just wrote?

Since Robin considers that the fall in Sterling has nothing to do with Brexit and it is solely due to speculators, I just wondered if speculation only produces downward trends !!!!
Of course Brexit is the only reason for the rather dramatic fall.
Incidentally, speculators are the way that financial markets work be it stocks and shares currency and commodities.
Adverse economic results drive a currency down, such as Brexit.

[Robin Hood]

Milti:

Since Robin considers that the fall in Sterling has nothing to do with Brexit and it is solely due to speculators, I just wondered if speculation only produces downward trends !!!!

That was an irrational thought! As one currency looses value because the speculators are selling, the other currency they are buying it with, rises. They tend to roughly balance out as a gain in value for one is a loss in value for the other.

Of course Brexit is the only reason for the rather dramatic fall

Milti: You drive your x-type into a petrol station and fill it up. Everything is running fine until you get a mile down the road and it coughs, splutters and conks out. Your assumption is ..... it is the fuel that is the problem as that was the last event. You call out rescue and they lift the hood and a loose lead on the distributor has come of! So your assumption was wrong because you didn’t lift the hood, you just wrongly assumed it was the fuel.

So it isn’t Brexit that caused the drop ...... you just never looked under the hood, where you would have seen these speculators all pounding away at their computer terminals, with a phone in each ear.

Incidentally, speculators are the way that financial markets work be it stocks and shares currency and commodities.

Absolutely, and that tells you that speculation drives the value of shares up or down ..... not to any great degree, the performance of the company. The stock market, like any of the markets is pure, simple and unadulterated ...... speculation. That is why, unlike a bond, shares have no face value .... the value is determined by speculators and the volume of buying and selling.

Adverse economic results drive a currency down, such as Brexit.

Economics is affected by markets and thus can damage the real economy whilst they contribute very little to it! Brexit was not an economic event it was an referendum result, it had no direct effect on the Euro value of a State pension .......... the speculators did that by assuming it would be bad for the pound. So, they sold their GBP’s for something they thought would be better for them and it became a self fulfilling prophecy ....... they made it happen!

[miltiades]

Your comparison is nothing short of absurd!!!
Day after Brexit results the pound crashed. Do remember that since ALL commodities, currency included, rise or fall because of trading activities that are based either on unfavourable results, fear of a major conflict, excellent results
Or lousy results such as the Brecit results.
Brexit is the culprit, and when finally we say FO to the largest trading group in Europe snd perhaps the world, that is when the funeral of stg will take place.
Those who voted for Brexit were not influenced by economics but pseudo rationalism, such as the bullshit of getting our country back, make our own laws etc that the not so sophisticated working classes and geriatrics fell for.
What will the UK gain by abandoning the EU. I tell you mate. Bolloucs !!

[Robin Hood]

Your comparison is nothing short of absurd!!!
Day after Brexit results the pound crashed. Do remember that since ALL commodities, currency included, rise or fall because of trading activities that are based either on unfavourable results, fear of a major conflict, excellent results
Or lousy results such as the Brecit results.
Brexit is the culprit, and when finally we say FO to the largest trading group in Europe snd perhaps the world, that is when the funeral of stg will take place.
Those who voted for Brexit were not influenced by economics but pseudo rationalism, such as the bullshit of getting our country back, make our own laws etc that the not so sophisticated working classes and geriatrics fell for.
What will the UK gain by abandoning the EU. I tell you mate. Bolloucs !!

Let's drop it? We will never agree because we see it from different angles!

[Pyrpolizer]

Speculators are Market Traders and I would assume part of the banking system, otherwise how would they be able to lay their hands on the vast sums of money they have access to for funds. So they are bank employees. They play with sums equivalent to one years UK GDP .... every day. They could only access that sort of money through banks. That is how Gleeson fell down, he was gambling with banks money and lost it on bad /risky speculation....

I disagree. You assume the biggest part of the speculators are independent separate from the Banks entities. The opposite is true. In fact the biggest speculators are Banks themselves like CitiBank just to name one. Then comes the various funds. The fact that some of those Banks like to separate their currency trading activities into sister companies is just for taxation purposes.

Furthermore you seem to have a wrong idea of the volume of currency traded by the speculators. It is usually about 5 times more than the needs of the primary market. Taking the UK's case it is about 5 times more it's total annual imports.The reason it is 5 times more it's because it's been exchanged too many times. In reality the currency in the hands of speculators at any given time is much less. I will post links later when I will have more time.

[Robin Hood]

Speculators are Market Traders and I would assume part of the banking system, otherwise how would they be able to lay their hands on the vast sums of money they have access to for funds. So they are bank employees. They play with sums equivalent to one years UK GDP .... every day. They could only access that sort of money through banks. That is how Gleeson fell down, he was gambling with banks money and lost it on bad /risky speculation....

I disagree. You assume the biggest part of the speculators are independent separate from the Banks entities. The opposite is true. In fact the biggest speculators are Banks themselves like CitiBank just to name one. Then comes the various funds. The fact that some of those Banks like to separate their currency trading activities into sister companies is just for taxation purposes.

Furthermore you seem to have a wrong idea of the volume of currency traded by the speculators. It is usually about 5 times more than the needs of the primary market. Taking the UK's case it is about 5 times more it's total annual imports.The reason it is 5 times more it's because it's been exchanged too many times. In reality the currency in the hands of speculators at any given time is much less. I will post links later when I will have more time.

It may be my bad English but I didn’t say they were independent ..... I said they were part of the banking system, as opposed to the financial system in general. They work for the banks who pay their salary plus bonuses, so as I said they are Bank employees.

I was going on memory but it seems I was about right on currency trading amounts .........

Here's how much currency is traded every day

If you’ve ever wondered just how much currency is traded on average each and every day, we have some good news. Thanks to HSBC, citing data from the Bank of International Settlements (BIS), we have the answer.
It’s $5,100,000,000,000. That’s trillion with a “t”.

It’s a mind-boggling figure, but actually smaller than the $5.4 trillion average seen three years earlier.

http://www.businessinsider.com/heres-how-much-currency-is-traded-every-day-2016-9

[Robin Hood]

Pyrpolizer:

RH wrote: But it is the action of the speculators that creates the change ..... not economics.

How do you know that?? It's actually the real economy that flags the speculators to start selling. By the minute Brexit was announced all foreign demand for GBP for investments in the UK was put on hold, isn't that true? It's simple supply and demand rule. Less demand equals less exchange rate for the GBP.

As you point out it is the buying/selling pattern that decides the rate. The trader buys ..... the computer sees the buy and maybe several more and decides the rate ...... the rate rises. When the buying spree stops, the rate remains unchanged until another trader speculates it will fall and he starts to sell ..... once again the computer sees the traders actions and the rate goes down. The large falls/rises are when a whole host of traders get the same idea at the same time ...... like they did with the Brexit result. They panicked and rapidly sold the GBP ......... that is why the change took place in a very short time. The only link to the economy is through the trader and he is merely speculating.

As for investments ..... no they didn’t all stop! As decisions like that take days/weeks to put into operation but any decision can be affected by the exchange rate, which we know is unpredictable. Economic decisions do not affect currency exchange rates in the short term only in the long term and there are contingencies to allow for this in any investment.

Undoubtedly there's also the speculators multiplying effect of selling large volumes of GBP that pushes the exchange rates further down that what it should be. However, theoretically at least, this multiplying effect balances out with another historic multiplying effect that had pushed the exchange rate of GBP upwards in the past when there was too much demand for it.

Do you mean there is a balance of sorts as a rise in one currency is a fall in another? In the long term it could be good economic results that were instrumental in giving the currency traders a good feeling that the GBP was a good bet and they bought up sterling over time rather than in a panic.

RH wrote: The pound loses its purchasing power over short periods of time (Milliseconds to months) as a result of speculation. A change due to economics would occur over a much longer time scale and would be related to the creation of money by the banks. ....
...So it lost around 1.5 cents in just over two hours! That was all down to speculation, not economics.

That's true. The reason is because speculators make a profit by predicting future changes in economics.

A prediction is speculation. But with currency their prediction, as I have said, is a self fulfilling prophecy. If they buy it will rise, if they sell it will fall. The velocity of both is determined by how much is being traded over time.

They take action now before it will be too late. However look at the effect. It's more or less 1%. Probably another 1% next day and another 1% the one after next. This is more than enough for all speculators to have reached the absolute minimum reserves of GBP they need to serve their clients of the primary market.

I don’t know this for a fact but I think there are automatic brakes in the computer that will come on if the change in rate appeas to accelerate in a too steep a drop over time. What that change rate limit is I have no clue. But the reserves they have to play with are mind boggling!!! (As the previous link shows it is about 5.1 TRILLION A DAY.)

Now do you honestly believe that the drop of GBP from 1.3 before the Brexit vote to 1.10 of today is because (or by most part) of the speculators??

Absolutely ......... there is no other way the rate can change other than the market traders speculating and buying/selling on their perception of a future event. Applied slowly it will create a trend for the rate over a period of time. You can see the trend on the charts ...... the peaks and troughs are almost instantaneous computer reactions to trader’s actions.

[Pyrpolizer]

If you’ve ever wondered just how much currency is traded on average each and every day, we have some good news. Thanks to HSBC, citing data from the Bank of International Settlements (BIS), we have the answer.
It’s $5,100,000,000,000. That’s trillion with a "t".

Sorry I have not been clear of what I meant by saying "the volume of currency traded by the speculators". Certainly I did not refer to the volume of transactions. I meant the actual total sum (volume) of money speculators have at any given time ready to be traded. E.g If I just own $100 and I trade it 10 times a day, this doesn’t mean that I own $1000! Similarly the 5 trillion /day (90% of which concern the US$ btw) doesn’t mean the speculators own that much money, which over a year would equal 100 times the GDP of the USA!! It’s just a recirculation of a certain sum over and over again, probably thousands of times.

As you point out it is the buying/selling pattern that decides the rate. The trader buys ..... the computer sees the buy and maybe several more and decides the rate ...... the rate rises. When the buying spree stops, the rate remains unchanged until another trader speculates it will fall and he starts to sell ..... once again the computer sees the traders actions and the rate goes down. The large falls/rises are when a whole host of traders get the same idea at the same time ...... like they did with the Brexit result. They panicked and rapidly sold the GBP ......... that is why the change took place in a very short time. The only link to the economy is through the trader and he is merely speculating.

Ermm.. no I did not say exactly that. What I said is that the primary force is supply and demand, which derives from the economy itself. Speculators usually act before the supply and demand gives definite signals, but in the long run they have no choice but to abide to the supply and demand rule. If they originally started selling GBP for the wrong reasons (out of panic just to use your own words) , they will eventually have to reverse their decision, otherwise they will lose money. There have been cases that this panic forced the economy down irreversibly or for unreasonably long time(the self fulfilling prophecy-again using your own words) but such things are the exception not the rule.

Now do you honestly believe that the drop of GBP from 1.3 before the Brexit vote to 1.10 of today is because (or by most part) of the speculators??

Absolutely ......... there is no other way the rate can change other than the market traders speculating and buying/selling on their perception of a future event. Applied slowly it will create a trend for the rate over a period of time. You can see the trend on the charts ...... the peaks and troughs are almost instantaneous computer reactions to trader’s actions.

Obviously we disagree on that. No problem.

[Robin Hood]

Pypolizer:

Thanks for taking the trouble to reply.

Para.! ..... we just have crossed wires.
Para"2 ......I'm thinking about it!
Para 3 ......Yes but we seen to be on the same sort of wavelength but vary in our concept.

The next couple of years are going to be interesting! I feel the Brexit in a way IS causing the pound problems but not the way Milti sees it.

After the result of the vote, the whole attitude of those who wanted to remain has been negative and dominated by dire warnings and predictions. Assuming that currency speculators are human like us, their job is demanding and whilst I have time to read various articles from several source they could well be running on opinions from around the office. If the opinions are negative this must influence their decisions which means they lose faith in Sterling.

The other problem is the 'team' we have doing the negotiating! I think May was right, she is strong and stable because she has both feet in a block of concrete. Twelve months on .... and what does she have to show for it? Not a lot. I don't have faith in her or her teams ability to come up with a deal, she is too weak a character. Instead of a 'Strong and Stable' leadership we need a 'Dynamic and Decisive' leadership. Whether you love him or hate him, Farage the showman had the qualities and Corbyn the morals and economic knowledge to deal with the EU. You have only to watch Farage and Hofstadt at loggerheads to see what is needed behind the closed negotiating doors. I fear May is too plastic and too polite to lead the negotiations.

We shall have to see what happens next.