UK overseas investors have been doing remarkably well out of Brexit. That far outstripped even US investors, who came second globally with average returns of 8.
Interestingly, though, a large part of that success was as a result of currency risk, with currency-related returns outperforming the underlying equity markets. Matthew Riley, head of research at the portfolio research and consulting group, says: Currency impact was also seen in allocation funds, EM debt and high yield debt funds, which are often not hedged by advisers. A lot of people. A lot of different people are trading, from large companies to part-time traders operating out of their bedrooms, something that only became possible with the proliferation of the internet.
And the changes in those rates are determined by multitude of traders buying currencies with other currencies and making judgements on what each is worth in relation to each other.
Prices can change at incredible speed in response to news and global events. Traders look at key factors, including political and economic stability, currency intervention, monetary policy and major events such as natural disasters.
The trader predicts how the exchange rate between the two currencies will change. So, if the trader believes that US dollars will strengthen against the pound then they buy dollars, which means they are also ditching their pounds. If they are right then the value of their currency rises and they can sell for a profit. If their hunch was wrong then they lose. If a trader believes the pound will increase in value against the dollar then they use dollars to buy pounds.
Read our Privacy and Cookie Policies to find out more. What drives currency movements? How does it work? Will I make any money? Search here More about:More...