Why isn’t there a forex currency index?
November 16th, 2009
Just like the stocks are combined into NASDAQ for example, then why can’t you combine the forex pairs and assign them a mathematical value???
Take a look here:
http://www.fxstreet.com/rates-charts/currencies-glance/
Fxstreet lists 34 forex pairs.
Benefits:
- Less risk.More pairs - less risk. Traders will take advantage because the market is open day/night in contrast to the daily trades among the stock market. That said, the forex traders gain several times more action with reduced risk, thanks to the combination of many pairs at once. No surprises anymore:Think about it: The european bank annouces higher rates, but the expectations were for lower rates. So, if you trade EUR/USD you will lose when you have selled. With such important news you will lose perhaps over 50 pips and if you trade on 100:1 leverage buying more than 1 lot…say goodbye to your money. Even without leverage the big players will lose, unless they utilize some industrial espionage 
to predict the rates that are going to be anoounced. So…if the one pair goes higher with 50 pips, else will go downtrend with 50, which keeps the balance. Of course if the balance is perfect 50/50 the index won’t move and you will not benefit at all :), but in case where you have 50/25 you get your 25 or less if your predictions are in the right direction.
There is one drawback, of course, like anything in life :): With so many pairs it will be impossible to rely on any news announcements. Your only hope will be the candlestick chart, perhaps combined with some additional mathematical technics(martingales, random walk avoidance, compound interest) and economical such(hedging, options..).
But isn’t the technical data the favourite to the forex traders?
So far, sadly there isn’t a "forex index" to my knowledge??? So the best you can do is simply make your own "portfolio" and assign it a mathematical value.
I plan to create a computer program(…a can do that ;), to calculate and trace such index value of about 40 forex pairs. If I succeed, I will post it here with link to website to see the index in action :).
Thanks.
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Tags: avoidance, candlestick chart, compound interest, computer program, currencies, Currency Index, drawback, Forex Currency, forex traders, fxstreet com, Glance, important news, industrial espionage, leverage, mathematical value, money, nasdaq, news announcements, No Surprises, pairs, pips, quot, random walk, right direction, several times, Stock Market, stocks, trades
As function of how the currency exchange market works it is not possible to make an "index" of foreign currencies as the value of each currency is relative to the currency it is compared to. This means that the same Euro for example may be worth $1.27 US dollars but at the same it it is worth, 122.40 Yen, and 0.8133 British Pounds. Thus a single index for a world wide market is extremely difficult and would in fact be useless, as there are too many currencies world wide to deal with. Further, which currencies would be chosen to make up the index and on what basis, and by who’s decision, under the authority of which country?
There is however an "index" of the U.S. Dollar which measures the dollar’s value against a "basket" of other currencies. The ticker symbol is NYBOT:DX. This allows you to see the strength of the US currency compared to a weighted geometric mean of the Japanese Yen, Euro, Great British Pound, Swiss Franc, Canadian Dollar, and the Swedish Krona.
I believe there are foreign currency brokers in the US that allow you to trade this fund as you would any other stock or index.
creating an index is pretty well meaningless and impossible.
forex is a zero-sum game, which means that the index would always be trading at 100.
you would have to hold one currency separate to even compile the index, at which point it would do nothing more than the ETFs UUP/UDN.