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Investor Services


Long Term Currency Trade

Invest Today, Get Paid Tomorrow

One very profitable way to trade currencies is to hold a position for the long term. This method of trading, however, is not for the weak-nerved. An investor who invests long term must be willing to assume losses along the way, trusting that the long term will result in profit. Take, for example, the graph below. During this period of almost six months, the value of AUD/USD increased more than 1700 points. There were brief periods of retracement along the way, but in each case the pair rebounded and broke through the previous high. An overanxious investor would most likely have panicked at the highlighted areas and closed his position, but a true long-term investor would have held on to his position.

Prior to this time period, the US had cut interest rates while the Reserve Bank of Australia consistently paid high interest rates. Therefore, this pair was similar to junk bonds (risky bonds that offer very high returns). Investors would buy AUD/USD in order to take their money out of the US and invest it in Australia where they could get huge returns from interest.

Future Outlook

This trend, however, has already begun to reverse itself, and will mostly likely continue declining in the long run. In the past five months it has retraced almost two-thirds of the previous gain, and it has the potential to break through the yearly low. This decline is in tandem with the improving economy in the US, as well as with the expectation that the US will raise interest rates, which have both increased the value of the US dollar. In order to profit from this expected decline, a long-term investor should short this pair. Holding this position for several months should show a significant profit. The graph below shows the initial increase in AUD/USD and its subsequent decline.