Markets Never Changed

[The following is taken from p.64-65 of Bird Watching in Lion Country by Dirk du Toit.]

What was once, thousands of years ago, a cross-road where tents were pitched and goats swapped for pigs, nuts for fruits, clothes for carpets, has today evolved into financial exchanges. But they essentially remain the same. People get together to buy and sell. Today they may conduct a transaction electronically, the buyer never sees the seller, nor the actual commodity he has purchased. Yet nothing has changed. An offer is made, and, once accepted, a binding contract comes into being.

Currency trading on the internet may be an advanced form of bartering but any prospective currency trader will do well to keep in mind that what drives trading is the people behind it and these people have changed very little over thousands of years. Essentially our base instincts are the same, fear, greed, loss, we react in much the same way to these feelings.

Remember also that nothing has an intrinsic value. We determine the price of a thing, be it the US dollar or a trinket in a flea market. Value, price, is affected by our perceptions of value, by information, by availability. The old crossroad’s market place gossip takes place today on 24-hour global TV and looks impressively factual, sometimes downright scientific. Yet much of it is speculation couched in certainty, probability masquerading as a certain bet. But rumours fuel trends as much as facts do and you have to listen to them too.

The challenge is to understand this market, how it thinks, how it works, and perhaps most importantly, how it reacts to stimuli. In the currency game, this is crucial. What moves the markets and why? Knowing this gives you an edge.