War and Currency Trading

The standard wisdom on war and currency trading is that wars drive investors to put their money in currencies such as the dollar as a safe haven currency. Investors and traders respond to the uncertainty and economic disruption caused by armed conflict. Besides buying the US dollar, investors commonly buy Swiss francs, Yen, Euros, British Pounds, or gold bullion. When it is possible that a currency will devalue greatly, or disappear in the case of conquered country, any reasonably stable currency is a good bet. However, wars resolve themselves, for good or for ill. There are winners and there are losers. Depending upon who gains control of natural resources or markets economies may prosper as a result of war. When an economy prospers its currency commonly rises as well. This is, sadly, why many nations go to war.

Using the civil war in Libya as an example we can speculate about how that war and currency trading relate to each other. The facts of the day are always discounted by the market so it is possibility and speculation that drive prices. Those who might expect to be most closely affected by events in Libya are the European Union, Switzerland, and Great Britain. This is because Libya is a nearby supplier of oil. An unstable Libya is an unreliable source of oil. A rebel dominated Libya beholding to NATO forces and Arab supporters then becomes a goal for the oil consuming nations to the North of Libya. In that regard it is of note that rebel forces in the East of Libya have started selling oil through a Swiss trading company. The sale of a million barrels of crude oil promises to help the rebel cause in Libya and allow Libya, or part of it, to remain a stable supplier to oil to Europe. This becomes good news for the Swiss franc, Euro, and British Pound. Recently we wondered about Egypt and the Euro. Egypt came through its political crisis without violence. When demonstrators asked for more rights in Libya, the government responded with lethal force plunging the nation in civil conflict. War and currency trading issues are still a concern in Yemen, Syria, and Saudi Arabia as demonstrators demand right from rigid governments. The attentive currency trader will watch these situations and trade accordingly.

The Forex trader who accurately anticipates arms conflicts can profit by directly trading currencies that will suffer in consequence and in trading options on currencies with the likely end result is not so clear or certain. How to trade currency profitably is by anticipating war and currency trading in a timely manner. Many international companies trade these same situations in order to hedge currency risk. Speculators simply anticipate the sales and purchases of the major players in order to profit from war and currency trading. The first half of profiting from safe haven trading is when a crisis emerges. The second half is anticipating price movements of currencies as crises resolve. For example, as the Libyan situation stabilizes one might expect the Euro, Swiss franc, and British Pound to rise a little. To the extent that this happens and to the extent that a trader can anticipate it, he can profitably trade situations of war and chaos and their effects on currency markets.