Money Market Trading Strategies

Trading in financial instruments is very risky and therefore you need to be very careful when engaging in such trades. Money markets are organized markets where participants or investors can lend and borrow short-term, high quality debt securities with average maturities of one year or less. The time frame is usually one year and not more than that. Smaller capital investments are one of the features of these type of markets. There are various loans or instruments that are traded on money markets that are the treasury bills, commercial paper, bank certificates of deposits among other loans. To become a successful trader there are quite a number of strategies to help you trade efficiently and make profits.

We have strategies for rising rate periods as well as those for falling rate periods. These strategies are likely to assist you to know what to do when rates are high and when they fall substantially below the normal rates of the market. You can read more now to get further details.

First of all, we will discuss the strategies for rising rate periods. To begin with, consider laddering. It is a very useful strategy for your investments. Here you purchase thirty-day maturities and keep track of each, as they mature reinvest the money in a ninety-day maturity. This way you have at least monthly money maturing for reinvestment at higher interest rates. The concept of laddering also spreads the return and investment load out to many days so as to take advantage of higher yields due to longer maturities. Still, on the rising rate period, try as much as possible to keep your maturities short. As interest rates go up to keep your maturities short in order to allow reinvesting your money at higher interest rates when loans like treasury bills or commercial papers reach maturity.

For falling rate periods consider the following strategies. One buys the longest maturities. Make sure that you invest your maturities in a one-year investment. This is because you are likely to be locked into the highest interest rates available at the moment before rates get back to their peaks or normal. Another strategy would be to go for laddered CD packages that are offered by banks. When interest rates go down banks tend to offer these packages to favor the participants. So, take advantage of long rates to lock in inexpensive money for longer periods before the market rates rise or they are at their peaks. Learn of the various strategies to get the most out of the trade. Make sure you apply the strategies where necessary as we have the rising and falling rate periods that need to be analyzed properly. Get started at this site.

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