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This article was written by Dave Fisher who specializes in IVA advice in the United Kingdom.

Short Term Money Trading

Given that numerous financial institutions exist in the market place at any one time, many of whose business it is to merely make money from trading the money market. Instead of selling products and services they sell and buy money in the short term.

With such a robust secondary market, one would expect the most efficient provision of financial service, with the sheer competition between institutions necessitating the lowering of profit margins across the globe.

Credit itself is the cornerstone of such coordinated action, as every seller of a short term security is in effect borrowing money from the buyer, and without credit, the short term money market does not exist. This flows on to the consumers who having less employment, have less money, and in essence this is a contraction in the economy. If this continues this will be known as a recession. A lot of people feel that it was this kind of thing that cause the current economic collapse.

An investor may need to fund an investment in another country, so they sell short term notes in the market and convert the currency, which allows them to fund their foreign position.

The funds are invested in short term paper which yields a return higher than that paid the account holder, and a profit is made. It’s all about lending at low rates then turning around and investing at high rates. These papers are sometimes known as PTDs.

A bank bill is an example of short term paper that is not government backed, but being guaranteed by a bank, is the next best thing. This bank bill will generally have a maturity of 90 days and is often the most liquid of all short term notes. If corporations are known to be needing large reserves of cash to fund a particularly heavy season of trade that is imminent, or if they will be receiving large amounts of money from seasonal trade like at Christmas time, if welfare payments are expected to be paid to recipients, or tax debts to be paid to the government; all these events signify the flow of money into, and out of the economy.

If an investor is able to invest capital at a relatively high rate, if later on the cash from consumers is held in the business bank accounts after a heavy season of holiday trading, it will then seek to be invested in the market and the sheer supply of lenders money will drive interest rates down. This is where the investor will then reverse the position simply by borrowing at a lower rate.