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WHY TRADE FOREX
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As I stated one moment ago, there will always be demand and supply for money. Democracy, capitalism, and the American dream have led people to seek fortunes. The problem is that many folks who rushed into a venture or an investment saw these dreams diminish as they got in either too late or too early or were just poorly informed. Looking back in recent history, ma nias such as the “tech wreck” and the stock market bubble financially ru ined many people. And there were the innocent victims who invested in Enron, AT&T, and other such companies. I am not talking about speculators; I am referring to employees of those companies who had their retire ment savings invested with their employers. Lately, we see weakness and a potential for a bubble to burst in the real estate market. Perhaps you are in vested in a second home or know someone who made a killing buying and selling fixer-uppers. The term “flippers” was popular as FSBO (for sale by owner) signs were planted in the front lawn of houses across the United States as eager investors were enticed to flip the property and make a fast buck. If you were in the game early on, you did well. If you got in the game late and are holding onto excess inventory, then you are at risk.

In late June 2006, many investors were left holding the bag on excess inventory—they bought a housing unit (condo, town home, or home) to turn around and sell for a profit but, due to such market conditions as an excess supply of homes for sale, cannot sell the property. Most of their cash or past profits may be tied up in the investment. Even worse, they may be overextended in credit from their bank. These are the folks who will be exposed to major financial disaster. To make matters worse, the Federal Reserve (the Fed) raised interest rates once more, for a record-breaking 17 consecutive hikes. That brought the Fed Funds interest rate to 5.25 percent. The prime lending rate shot up to 8.25 percent. That put the fixed rate for a 30-year mortgage up to 6.62 percent (actual mortgage rates depend on your credit score, down payment, etc.). What this did in effect was to bring on higher borrowing costs, which slowed the housing market even more.

As of October 2006, both new and existing home sales have continued to slow. Higher mortgage rates had been expected to slow the housing mar ket, and they finally started showing their effects. Just to show you, mort gage rates went up roughly 125 basis points since the same period starting from 2005. So when the reports came in from June 2006, new home sales edged down 3.0 percent to an annual rate of 1.131 million. New home sales were down 11.1 percent on a year-over-year basis. The graph in Figure 1.1 shows the rise in mortgage rates and the decline in new home sales.

It did not stop there either; existing home sales slowed with supplies rising. Existing home sales edged down 1.3 percent in June 2005. Existing home sales at that time were down 8.9 percent on a year-over-year basis. Supply became even more of an issue for existing homes than for new homes as inventory of unsold existing homes rose in June 2006 to 6.8 months from 6.4 in May 2006. That set a supply figure at a nine-year high. Figure 1.2 shows the same trend: As rates moved up, sales declined.

FIGURE 1.1 New Home Sales versus Nationwide Average Mortgage

FIGURE 1.2 Existing Home Sales versus Mortgage Rates

This slowdown has many investors looking to maintain a means to gen erate an income, which is what is attracting so many people into trading the forex market. Some of the benefits of forex trading are that there is no trav eling involved, you trade from the comfort of your home or office through the Internet, and you have virtually 24-hour access to the market. Yes, there are risks to trading; but as we have seen in the past, most investments come with risk. You just need to be properly informed and educated, and that is what I want you to achieve through reading and studying the material pre sented in this book.

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