The Effects of Currency Speculation? (1 Viewer)

[SGSII]

Hi Guys
Could someone please help explain how does currency speculation affects exchange rates?
Please explain in the most simplest terms, cos I still don't see the link :S
Any help is good help
Thanks!

 

[golgo13]

To my understanding other members may be more familiar with its role,
When your speculation currency it's like the futures market your hedging for something to happen, so lets say USD>AUD in value, i'm speculating that the aussie dollar is going above parody against the green back (USD) in the near future, i'm going to horde as much AUD as i can, trading it for in a general sense the USD, now when you get enough people on the same boat, (financial markets all about trends in a sense then) you start to tip the scales and the value of the AUD goes up against the green back. This can work with other scenarios with more currencies but in a general sense it's like say i'm hoping for this to happen and i want to be in with a slice of the action when it does.

 

[RishBonjour]

Speculators play quite a prominent role in FOREX market. These are participants who are more interested in gaining short term benefits from movements in price of currency rather than using currency to purchase foreign goods/services etc. Say a certain amount of people expect the USD to increase in value relative to AUD so they buy, lets say, $US10000 with AUD at current Xrates. This will, although minutely, prop up the value of USD which in turn might cause other speculators to follow, initiating a relatively large change in USD relative to AUD. So basically, because of this sudden increase in demand (instigated by initial speculation) the xrate of USD/AUD will be change i.e. USD becomes more valuable (relative to AUD).

 

[SGSII]

Okays cool! Thanks guys
When you put it that way, its much more easy to understand

 

[lochnessmonsta]

My eco teacher said to me that ~95% of trade in the currency market is speculation, and the other 5% is actual trading (for imports/exports) or central banking

 

[RishBonjour]

My eco teacher said to me that ~95% of trade in the currency market is speculation, and the other 5% is actual trading (for imports/exports) or central banking

lol your eco teacher just read that off leading edge textbook. Keep in mind though, when you say that you should quote the source (leading edge provides it iirc) but my teacher told me to stay away from that stat.

 

[lochnessmonsta]

I do eco by distance education so I've only met my teacher once in person, so if I flick him an email I have no idea where he gets the answer from. I remember the 95% figure because I sent him an email asking for that stat.