How to Trade in the Money Market
The concept of trading in the money market has gained immense popularity of late Generating a huge income from this market is not very difficult if you know the secrets of the task Yet before proceeding with the trading part a new player should get a detailed idea of what a money market is all about and how it functions
Money market at a glance
The term money market refers to a part of the vast fixed income market and here money is not referred as the means of barter Here it is referred as a commodity which traders can buy or sell depending on their choice or trading policies The investments made in the money market are generally for short period of time which is why they are often referred as cash investments
Often confused with the stock market money market is slightly different and mostly trades in IOUs which are issued by the governments Federal funds repurchase agreements exchange bills deposit certificates banker's acceptance commercial paper treasury bills as well as short time mortgages are some of the common instruments of this market The valuation maturities credit risks structures as well as currencies of the instruments may vary significantly and trading them successfully is possible only when one knows the strategies well
Factors affecting the money market
To trade in the money market you should know the factors which influences it Though there are several elements monetary policy set by the Federal Reserve plays a dominating role Depending on the economic condition of the country the government often increases or decreases borrowing rates for short-time Reduction in the borrowing rates lowers the discount level which in turn increases the flow of money in the economy However when there is an inflation the interest rates are set high for reducing borrowing and controlling the flow of money Therefore if you want to make money in the money market you should keep an eye on the changing rates regularly
Tips to deal with the changing rates
Just tracking the changing rates of interest is not all If you want to become successful you should know how to act in every situation When the market rates are moving in an upward direction you should aim the short term investments of not more than three months This will help you in getting the maturity faster and you will be able to re-invest the money in the same way for making better gains
Once the Federal policies are changed and the rates are reduced you should eye on the long-term maturities for earning a decent amount of profit When the rates are low you should not settle in maturities lower than a year Also check which maturities or instruments offer you better gains Both short-term and long-term investments are available with banks Just select the one that suits you and invest safely
Someone who can manipulate his money depending on the changing policies of the government can certainly taste the fruits of success faster than others