Why should you buy the dip?
The sharp rise in the JPY/USD is causing a massive unwind of Yen carry trade positions and contributing to the sharp decline in US stocks. For those who do not understand how this works, a brief explanation：
1) Many traders were borrowing Jap Yen (JPY) at low interest rates, converted them to USD and used this to buy US stocks
2) Now that the Bank of Japan (BOJ) is raising interest rates, the JPY has strengthened significantly against the USD.
Now, these traders are in big shit. Not only must they pay higher interest for the JPY they borrowed, they are now facing huge forex losses as well. The USD assets they are holding may not be enough to repay the JPY they have borrowed.
3) This is causing a huge unwind of these trade positions. Traders facing big losses and margin calls are selling their US stocks to raise USD, converting back to JPY and paying back their loans.
4) This can lead to more selling pressure on US stocks and even more declines in the short term. Middle east war escalation, US political uncertainty is also adding to the fear and panic.
As an investor, this is great news because this type of short term crisis and panic is what gives me the opportunity to scoop up high quality US stocks at bigger and bigger discounts. take advantage of temporary mis-pricing caused by short term crisis.
This is how we get richer.
1) Many traders were borrowing Jap Yen (JPY) at low interest rates, converted them to USD and used this to buy US stocks
2) Now that the Bank of Japan (BOJ) is raising interest rates, the JPY has strengthened significantly against the USD.
Now, these traders are in big shit. Not only must they pay higher interest for the JPY they borrowed, they are now facing huge forex losses as well. The USD assets they are holding may not be enough to repay the JPY they have borrowed.
3) This is causing a huge unwind of these trade positions. Traders facing big losses and margin calls are selling their US stocks to raise USD, converting back to JPY and paying back their loans.
4) This can lead to more selling pressure on US stocks and even more declines in the short term. Middle east war escalation, US political uncertainty is also adding to the fear and panic.
As an investor, this is great news because this type of short term crisis and panic is what gives me the opportunity to scoop up high quality US stocks at bigger and bigger discounts. take advantage of temporary mis-pricing caused by short term crisis.
This is how we get richer.
Disclaimer: Community is offered by Moomoo Technologies Inc. and is for educational purposes only.
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Moneys working : Makes sense, but the sell-off should not be over yet. This is just the first wave, and this time it's going back to around the 200-week moving average.
JonSnow : Buying dip has many advantages, if market goes down, you loose less, if market goes up you gain more. Makes sense, doesn't it?
103539497 : hi
Maniac Fool : … or to average down
牛牛3888 : The fight isn't over