Is there any value in trading african currencies seeking alpha stock market index futures

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Trading strategies that exploit currency arbitrage typically employ currencies which are associated with strong monetary policy and thus provide an extremely liquid market. The six most popular currencies in currency arbitrage strategies include: U.S Dollar, European Euro, Japanese Yen, British Pound, Swiss Franc, and the Canadian Dollar. Currency arbitrage traders look for trades or a series of trades that end in profit rub usd. Using this strategy and focusing on the six currencies mentioned above employs a very liquid strategy. However, the markets in which these currencies exist are very efficient. The efficiency of the markets reduces profit margins currency converter zar to usd. To increase profit margin in currency arbitrage, one might consider taking on additional risk including a dive into less efficient markets; such as those found in Africa.


Moving forward, I discuss why African currencies have not been a popular recently and the risk and return in trading African currencies.

The continent of Africa has an abundance of resources and potential but the instability in the economies and politics presents high risk for investors and traders. The recent instability in the African economies relates to the global economic slowdown. In 2009-2010 China became an integral investor in African economies, receiving nearly 25% of its exports from sub-Saharan countries. When China’s economy began to slow down in 2015, it subsequently caused a slowdown in African economies. The sharp decline in commodity prices has diminished the need for the continent’s main exports: precious metals, gold, and diamonds. Additionally, the politics within Africa fuel the flailing economy. In general, Africa is rich in resources but the majority of the population lives in poverty. The continent contains seventy-five percent of the world’s poorest economies usd to chf exchange rate. Countries with low unemployment fluctuate from 2% to 15%, while those with high unemployment fluctuate from 23% to 90%. The contrast of natural resource wealth and poverty in these countries combined with the problems left behind by colonialism leads to political instability. And this political uncertainty instills volatility and distrust in their financial markets. The slow growth in African economies caused by the global economic slowdown and unstable politics make trading African currencies a risky investment that have recently lacked returns.

In comparing economies in developed countries, such as the United States, to emerging market economies, such as those in Africa, it becomes clear that the volatility in emerging markets stem from the environment in which monetary policy is applied. Now, I review the aspects of the economic environment that cause high volatility but can also yield high returns.

The economies in Africa tend to be more receptive to shocks in the market and thus have more extreme and frequent reactions usd to inr forecast 2015. As an investor, this shock to the market can bring huge upside potential. If a shock to the market has effected one currency before it has effected another, this leaves room for a high return in trading these two currencies.

The domestic currencies in the continent are sensitive to changes in the exchange rates of developed countries, such as the United Kingdom and the United States. A change in the exchange rate of a liquid global currency can cause a huge change to the exchange rate of a given African currency. Similar to the first risk discussed, this can also present big returns.

The policymakers in African economies tend to lack resources which aid in productive policy development convert to binary code. This often leads to ineffective monetary policy. The history of weak monetary policy has wounded foreign and domestic parties’ confidence in African monetary policy

The health of African economies depends heavily on commodity exports. Thus, these economies are very vulnerable to a fluctuation in commodity supply and demand. In turn, their currencies are sensitive to commodity markets us stock futures cnn money. When commodities are up, African currencies will boost. However, when commodities are down, African currencies spiral downward. The combination of investments in commodities and African currencies must be calculated.

The risks overviewed above provide reasoning for the volatility in African Currencies. The figure below highlights the volatility in 6 currencies relative to the USD: the South African Rand Zambian Kwacha, Kenyan Schilling. Nigerian Naira, Ghanaian Cedi, and Botswana Pula.

In choosing currencies, I eliminated all African currencies that were pegged to another non-African currency. Similarly, I eliminated all African currencies that were pegged to the South African Rand and just used the Rand. I choose to include the Zambian Kwacha, Kenyan Schilling and Nigerian Naira because these currencies are traded on Africa’s largest stock exchange, the Johannesburg Stock Exchange (JSE). The trades on the JSE boost trading volume for these currencies making them attractive usd to ruble exchange rate. Additionally, the Ghanaian Cedi and Botswana Pula are supported by strong economies and fairly stable democracies. While additional currencies can be added to any currency arbitrage model, I will suggest these six as they are the more conservative picks. Investors looking for less conservative currencies should consider the South Sudanese Pound as the country was only granted independence from Sudan in 2011 and the Rwandan Franc as the economy still recovers from the 1994 genocide futures market news. Choosing stable currencies minimizes volatility. However, as these currencies are all in emerging markets there exists unavoidable volatility. The ultimate decisions on if the volatility is worth the return is to be made by the investor usd to aud rate. Now I review the outlook of these currencies to aid investors in making this decision.

The outlook for African currencies looks strong because of the predicted commodity price increase, termination of South Africa’s Finance Minister, and raising interest rates in the U.S. The World Bank set forth a report that forecasted promising returns in the commodities market. Specifically relating to the continent, the promise of bullish metals and minerals market strengthens African economies. The South African Finance Minister’s termination in March 2017 and Fed’s increase in interest rates throughout 2017 intensified volatility in emerging market economies. The volatility presents increased opportunities for arbitrage spread between all African currencies and thus strengthens the possibilities for solid returns. In all, the bullish commodity market and geopolitical fueled volatility mark high potential for worthy returns in trading African currencies hkd to usd exchange rate history. I suggest the Oanda fx trading platform for investors that are convinced by this argument and wish begin trading currencies. To open an account, Oanda requires a minimal first deposit of $1 with a maximum 50:1 leverage. Additionally, investors can sign up for a practice account using virtual funds. I suggest familiarizing with the platform through tutorials and research on the website. Later, I detail how to get into the weeds with Oanda and optimize currency trading models.


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