For a foreign exchange beginner, how to deal with or reduce trading risks is a top priority.
As a beginner should how to choose the loan currency?
The following forex trading primer will share with everyone the lower risk – safe – haven currencies.
What is a safe haven currency in the foreign exchange market?
What type is it usually of?
To put it bluntly, the safe haven currency is also called the appreciation loan currency, which is not easy to be affected by factors such as politics, war, market ups and downs, and avoids the described risks with a large bottom limit.
Stable, not easy to depreciate the value of the currency.
Beginners warm remind that although the safe haven currency can bypass some risks but it does not mean that it is not easy to derogate the value rate to understand the world there is no such currency does not cause ups and downs just say that the intensity of ups and downs is relatively small.
In foreign exchange investment, people can often touch the safe-haven currency. When the market experiences great turbulence, systemic risk factors will be enhanced, and the safe-haven currency is the other half that investors mainly care about and choose.
The factors that make this currency become a safe haven currency include the long-term stable consumption power of this currency, the current situation of the country’s political and financial bureaus and market prospects, and the current policies of the central bank.
The reverse risk credit refers to the credit that causes irregular fluctuations or other inflation because of the instability of the national political and financial bureau.
Only the news media often differ in their opinions, so the currency will be considered sufficiently safe for a while, only to be reversed after a while.
For example, at the end of May 1995, the Business Service Journal ran a story titled “Marco has lost its luster as a safe haven currency.” Two years later, Reuters ran a story titled “Marco is back as a safe haven currency.”
Similarly, on August 40, 2001, Singapore’s Straits Daily published an article titled “The US Dollar remains a safe haven currency”, but many months later the International Pioneer Tribune argued that “the US dollar has long lost its allure as a global safe haven currency”.
The world’s current “safe haven” currencies are the US dollar, the Japanese yen and the Swiss franc – the US dollar has a long history of being considered a safe haven currency.
At the end of the 21st century, the US economy developed rapidly, becoming one of the most powerful countries in the world, and the influence of the US dollar increased for the first time.
Historically, the dollar has been seen as the currency that can maintain spending power and reliability when other currencies fall.
Therefore, it can be said that the US dollar is priced according to the tied external futures, monopolizing the crown of the international currency. When the world economy is in the deep recession, the demand for external futures will be reduced, and the price of external futures will also drop sharply. At this time, the US dollar will soar.
Therefore, if risks come, investors will use these two special tools to make safe investment migration when they realize that economic development is in turmoil. The market tends to exchange their credit or property into dollars. Due to the free liquidity of dollars, dollars will become the most convenient and quick credit currency to prevent risks.
The Japanese yen is one of the most traded currencies outside the US dollar and Europe, and is on par with the euro in market share.
After the Second World War, the Japanese economy showed a rapid development trend from 65 to 90 years in the last century. In the 1990s, the bubble economy appeared, which caused great harm to the economic development of Japan.
It was pacified by the super-heavy intervention of the Japanese government.
Japan’s economy is leading, and the yen is often used as a reserve currency after the dollar and the Euro.
As a capitalist country, Japan has an effective industrial structure, mature period of a big economic country and the detailed financial system, in other words, deep economic development of Japan as a whole strength has shown basic for the value of the yen steadily. What’s more, Japan has the foreign exchange reserves in our country in recent years.
Japan is an island country, not easy to be affected by politics, war, market fluctuations and other factors, can avoid the risk of depreciation rate, low loan interest of the yen.
In the past, amid the turmoil in the Middle East and the Korean Peninsula, investment in the yen has become a way for many investors to appreciate.
Japan’s low rate promotes the yen to become the world’s least cost of capital currency, so when project investment opportunities appear outside of Japan, investors with high personal credit and excellent vision can easily finance a large number of cheap yen property from Japan, plus the yen is freely exchanged for currency, so it can be easily converted into other currency.
And then allocate the funds to their favorite entrepreneurial projects.
In short, if the world economy develops steadily and there are many investment opportunities for projects, the whole process of investing in Japanese yen and investing in other markets can be regarded as selling Japanese yen to buy other credits, which should push down the exchange rate of Japanese yen.
The duration of the yen’s weakness will be determined by the availability of project investment opportunities.
However, if the project investment suffers losses or the world economy encounters difficulties, and the project investment opportunities in countries other than Japan begin to fade, then the investors who lend yen will have to make a profit or stop the profit and stop the loss, and exchange the remaining currency into yen to repay Japan.
Japan is the world’s largest net creditor, having been the world’s largest net creditor for the 21st consecutive year from 1991 to 2012.
By the end of 2016, the foreign assets owned by the Japanese government, companies and themselves, after deducting debts, amounted to 320 trillion yen, up 9.7% from the end of the previous year.
Among the foreign assets, except for the government’s foreign exchange reserves of more than $1 trillion, the vast majority are OFDI and simple project investment (project investment in the financial system) owned by folk customs.
Therefore, if the international financial system is in turmoil, some Japanese assets derived from the “home demand” will tend to be withdrawn, leading to the appreciation of the yen.
In fact, the history of yen’s emergency hedging is not very long. Since April 1973, the Japanese yen started to implement the floating exchange rate system. In 1997, the unexpected surge prompted the carry trade to be concerned by the market, and the emergency hedging feature was really widely accepted by the market after 2009.
In typical Risk-off periods, such as the financial tsunami in 2009, the European debt crisis and the debt ceiling crisis in the United States in 2007, and the devaluation of the RMB in August 2014, the rate of yen against the US dollar all showed a strong pull up.
The most representative event was in 2011, when the massive earthquake in Japan triggered the tsunami and nuclear leakage in March of that year, which should have been the absolute depreciation factor of the yen, but in fact the yen rose against the dollar instead of falling, although the increase was less than 1%.
The prevailing view was that Japanese insurance companies would dump their overseas portfolio investments to cover quake-related payouts, driving the yen higher.
In fact, the offshoring of foreign assets for compensation has not occurred.
It can be seen that the heart (expectation) is the core element that breaks the market price equilibrium in the short term.
In conclusion, these market expectations contributed to the yen’s rise in March 2011 and further solidified the yen’s safe-haven status.
Still, the yen deserves credit for its safe-haven performance over the last decade.
The Japanese yen, known as a “safe haven”, has become an attractive choice for many as the market has become nervous again due to the escalating trade friction between China and the United States.
Switzerland has always been a politically and economically independent country, permanently neutral in the world and not involved in world wars.
It has not joined the euro currency, has kept its own Swiss franc, and has imposed strict bank secrecy.
The Swiss bank has done a good job of protecting customer privacy by providing only their real name for the first deposit and then coding their accounts so that their real name does not appear.
Switzerland’s permanent neutrality also precluded the risk that depositors’ money would be destroyed in war or frozen under political influence, and Swiss banks were considered the safest place to be.
As a result, the Swiss franc has become one of the first choices for investors when uncertainty in global markets increases.
Secondly, Switzerland’s economy is also in the forefront of the world, with per capita GDP ranking second.
Switzerland is a highly developed capitalist country and one of the world’s richest countries with the most advanced economy.
A secure economy and bank secrecy have made Switzerland a haven for tax-avoiding investors, and financial services have become an increasingly important part of the Swiss economy.
Switzerland is a highly developed industrial country with a free economy and minimal government intervention. It advocates free trade and opposes protectionism.
In addition, the Basel Capital Accord, a global set of financial rules, was born in Basel, Switzerland, where the Bank for International Settlements is based.
The reputation of the Swiss franc is improving day by day, gradually strengthening its position in the international financial market and becoming one of the major international reserve currencies.
However, Swiss bank secrecy has been questioned by the European Union, the United States and other countries.
Switzerland’s centuries-old tradition of protecting the privacy of private accounts came under severe challenge in 2014 as the global financial system grew more complex and financial regulations tightened.
Of the three safe-haven currencies, the dollar, the yen and the Swiss franc, the Swiss franc is worth mentioning.
The SNB‘s credibility has been badly damaged by the 15-year Swiss Black Swan, and its reputation as a tax haven has been in tatters since the country joined the OECD in 17 years.
So novices in the choice should be fully considered, so as not to lose money.
