Forex Trading News

Exchange Rate Overshoot Hypothesis (Overshooting Model)

The Exchange Rate Overshoot Hypothesis, often referred to as the Overshooting Model, is a concept in foreign exchange (FX) trading. It offers an explanation for the often volatile short-term movements in exchange rates. Understanding this hypothesis can provide FX traders with insights into the dynamics of the currency markets they trade.   Key Takeaways – […]

17+ Options Pricing Models – Ways to Value Options & Derivatives

There are many options pricing models with complex mathematical foundations and variables that go into determining what an option is worth. But in terms of the big-picture intuitive understanding of an option’s value is, it really boils down to two main factors: the probability that an option will be in the money (ITM) by expiration […]

Currency Valuation Models: How Are Exchange Rates Determined?

Different traders have different ways of determining a currency’s fair value price. Clearly, different expectations and different motivations are what make a market. While many traders have their own decision rules and proprietary systems, there are currency valuation models and ways of looking at the currency markets that are the most common.   We’ll cover […]

What to Know Before Trading Foreign Equities

Before trading foreign equities denominated in a different currency, it’s important to understand that it’s not just the returns, but returns + the currency movement. For example, if the USD has a higher nominal interest rate than the JPY, it will have implications for the forward curve of the USD/JPY currency pair. So if a […]

Interest Rate Parity (IRP)

Interest rate parity (IRP) is a fundamental concept in international finance that describes the relationship between interest rates and foreign exchange rates. At its core, IRP asserts that the difference in interest rates between two countries is equal to the expected change in their exchange rates. We also give a mathematical example below.   Key Takeaways […]

Thirlwall’s Law (Currency Trading)

Thirlwall’s Law, named after the British economist Anthony Thirlwall, is a principle in macroeconomics that explores the relationship between economic growth and the balance of payments in an economy. It posits that the long-term growth rate of an economy is directly related to the growth rate of exports divided by the income elasticity of demand […]

Will Sterling Find Direction?

After reaching a low of $1.03 in the aftermath of the budget fiasco of September 2022, the Pound has rallied smartly, reaching a recent high of just below $1.32. There has been a significant reversal to the downside in recent weeks, but as can be seen below, we are still in a clearly defined trend […]

Is the Yen’s Safe Haven Status Changing?

The yen is typically thought of as the most notable safe haven in the FX market. That’s one of the first things an FX trader learns about the market. There are a few main arguments why the Japanese yen is considered a safe haven: i) Japan has a positive net foreign asset position. This means […]

What Is A Currency Defense?

A currency defense is an economic policy implemented by a government in order to protect its currency’s value from speculators in the foreign exchange market. A currency defense can take many different forms, but typically involves intervention in the foreign exchange market to buy or sell the currency in order to keep its value within […]

A History of Financial Wipeouts of Wealth in the 20th Century

In this article, we’re going to look at cases of countries in the 20th century where there were full wipeouts, and near-wipeouts, of financial wealth. This is based on 60/40 portfolios (i.e., 60 percent stocks, 40 percent government bonds) and based on real (inflation-adjusted returns). A 60/40 stock-bond mix is often taken as a fairly […]

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