An intro to increase your odds in the $market$

Let's talk about risk appetite today...With this information on hand, investor/trader can increase their edge/timing to profit in the market!! So how does one have a rough gauge on the risk appetite in the market? Here you go!!!

First and foremost, price movement is caused by the movement of funds from low yield to high yield investment vehicles. Everyone wants to make their money work hard for them, isn't it? The currency market offers an excellent channel through carry trades. Basically, it means selling a low interest rate currency and buying a high interest rate currency. By leveraging into this interest bearing position, the profit can be quite substantial!! Taking a look at the currency interest, the lowest among them are: JPY (0.05%), CHF (0.25%) and USD (0.25%). Paired with a high interest rate currency like AUD (4.75%), taking a long position on AUDUSD gives a net interest rate of 4.50%. Wow! This is much better than any fixed saving rates in our local banks!

Now, how does this information relates to risk appetite? I would say we can use it as a proxy for risk appetite. If AUDUSD or any high net interest currency pair (i.e. generally xx/JPY, xx/USD, xx/CHF) is going higher, it means that more traders are taking on more risk. This will help push global equities and other riskier asset classes like real estates etc. Quite a good inter-market indicator to put in your trading arsenal!! Take a look at the chart below and this will be clearer I promise!!! :)

Happy profit!!!