Topic: Inflation, and the Role of Stockbrokers in Currency Trading

  • Author
    Posts
  • #2994

    adamsmiths
    Participant

    One of the most important things for a currency trader to track is inflation. For one currency, a high inflation rate is generally a positive sign, but at the same time, it could also be negative for some other currency.

    The rise of the prices of basic goods in an economy is monitored by inflation reports. Here, the “prices” indicate the rates at which the purchasing power is falling. This is a measure of how much you can actually buy with a dollar. The rate of inflation rises when the growth of money supply and the growth of the country’s assets are not equal. A low and steady inflation is considered as good by many economists. “Most directly, price inflation is seen as being one of the major drivers in whether or not a country will choose to raise or lower interest rates,” said Ann Gorenkova, currency analyst at NordFX Company.

    Inflation can be measured by the Producer Price Index (PPI) reports and Consumer Price Index (CPI). The cost of a sample of goods and services on a consumer level is measured by CPI. This stage is considered as the final stage of inflation. The level of inflation rises with the rising of CPI.

    As inflation is closely related to interest rates and it can also have a great influence on exchange rates. Countries try to balance inflation and interest rates, but the inter-relationship between these two is often difficult to manage. Higher interest rates attract foreign investment which, in turn, increases the demand for a country’s currency.

    Stockbrokers are closely related to market investments. A stockbroker is an agent who charges a commission or fee for executing the “sell and buy” orders on behalf of an investor. Few years ago, it was only the wealthy people who could afford a broker and have access to the stock market. But now, with the help of internet, anyone can hire discount brokers who let you trade at a much lesser fee.

    On each trade, you will be charged commission by the stockbrokers, whether you are selling or buying. They charge this commission either as a percentage or as a flat fee. Gijs Nagel, the director of Dutch-based DEGIRO, which is one of the fastest growing brokerage firms of Europe, thinks that these commissions could soon be in a “race to the bottom” among rival brokers.

    “Stockbroking fees have come down in price significantly in the last 20 years, as technology improvements and scale have reduced transaction costs”, said Danny Cox, the head of communications for Hargreaves Lansdown. “Over time you would expect that further technology and scale improvements would see stockbroking and investment fund management fees decline”, he added.

    Gijs Nagel thinks that the brokerage firms will gradually turn to advertising, instead of relying on fees for revenue. He further believes that these firms can also sell their software to other companies and charge them for proper asset management. A financial services firm named IG, has opposed to this. According to them, “An investor needs to consider not only the fees a provider charges but also; the price of the stock they (are) buying or selling and the technology their provider has to deliver them a comprehensive and cost efficient service”.

You must be logged in to reply to this topic.