What is quantitative easing and why is it needed?

01/25/2015 13 292 4 Reading time: 10 min. Rating:

Author

: Konstantin Bely

Today I will tell you about what quantitative easing (QE) , why quantitative easing programs , how they work, and what results they lead to. You've probably heard or read a lot about such programs in the news in recent years. Already 3 QE programs have been implemented in the United States, and most recently the first quantitative easing program was adopted in the eurozone countries, the implementation of which will begin in March 2015. What it is, how it affects the country implementing the program, and how it can affect the economy of our countries - you will learn about this by reading this article. I will try to explain as clearly as possible, in simple and understandable language.

What is quantitative easing

To understand what quantitative easing is, you need to understand how the global economy works. So, here are 3 main factors of economic growth:

• Increase in production capacity.
• Technology development.
• Receipt of funds into the economy.

And especially with the third point, problems most often arise. When the real sector of the economy (namely, it is its core) does not receive enough funding, economic growth slows down, and this has to be dealt with at the state level. Then the central bank intervenes in the situation and initiates a quantitative easing program.

In a nutshell:

Quantitative Easing (or QE for short) is an asset repurchase program that stimulates investment in the economy, consumption and spending by reducing the cost of loans.

That is, the central bank buys assets from banks, and banks, in turn, receive free funds and the opportunity to make lending more accessible. Credits contribute to the fact that the demand for goods and services increases, production increases, and the economy “grows by leaps and bounds.” In any case, this is exactly how it should be ideally (we’ll talk about the nuances of using QE in practice a little later).

What is unit economics

There is fierce debate in smart books and professional public pages, and courses are constantly being published. Because of all this, this may seem like a difficult question. Indeed, there are a lot of terms here and you need to work hard with the theory. But if terminology is not important to you, but only the practical side of the issue, using unit economics is not so difficult.

Unit economics is a tool that allows you to assess the profitability of a project, find bottlenecks and points of multiple growth. The basis is taken as a separate unit - a unit that should make a profit. A unit is a basic unit that generates income, and each business has its own. This could be a unit of goods, one customer, etc.

Quantitative easing: explaining it “on your fingers” and putting the puzzle together

So, in general terms, you have already grasped the essence of QE. But probably the puzzle in your head has not yet come together, and you have many questions: “Why is the central bank buying assets?”, “Why does this help the economy?”, “How does QE stimulate demand?” etc. To make everything clear, let’s explain the mitigation mechanism more clearly.

Imagine a state that has problems with economic growth. And this state has a central bank - a body that regulates the value of the national currency in the economy. Through its actions, it affects the cost of deposits and loans. For example, by lowering your interest rate.

When the rate at which private individuals borrow money from the Central Bank decreases, banks receive funds on more favorable terms. Therefore, they reduce the cost of loans for their clients - households and businesses. At the same time, the rate on bank deposits is also reduced, because banks no longer have such an urgent need for money, and it makes no sense for them to pay clients for giving them their funds for use.

When deposits do not generate high returns, they become less in demand and money flows into the real sector. People are starting to save less and spend more, thereby accelerating consumer demand. And when demand increases, supply also increases. Business is beginning to develop more actively, which is facilitated by cheap loans, which we just mentioned.

And everything seems to be fine, but.. only as long as the Central Bank has the opportunity to reduce the rate. What to do when it has already reached zero? Then we have to resort to an emergency method - quantitative easing.

How the QE mechanism works:

1. Private banks have liquid assets - primarily bonds. They can provide profit in the long term, but when the economy slows down, banks prefer to have more funds here and now.

2. The Central Bank turns on the printing press and, using additional funds, buys these assets from banks. Let’s say right away that printing money in the literal sense of the word is no longer necessary: ​​in fact, the Central Bank simply “draws” the required balance of electronic money on its accounts.

3. Banks receive real money, and then the situation unfolds in the same way as with a regular reduction in interest rates. Cheap loans, low interest on deposits, stimulation of production and, as a result, economic growth.

It turns out that quantitative easing helps banks to obtain funds without additional effort by selling their assets, and the Central Bank, on the contrary, thanks to this, receives assets that also promise income in the future.

Errors in calculating unit economics

The most common mistake when calculating unit economics is calculating income for the entire company as a whole . Each customer acquisition channel can contribute differently to your business. Instagram can bring one profit, and advertising banners another. If you count everything together, you may miss an unprofitable promotion channel, so you need to do calculations for each channel separately.

The second mistake is made less frequently, but sloths are still found. In no case should you ignore the cost of attracting a client . This is especially important for the IT sector, since it is in this area that earnings are most often made through subscription fees. It can cost 2,000 rubles to attract one user, and 200 rubles for a service. the client can use it for only 3 months. Thus, attracting such a user will not pay off, and the company will fall into the red.

Example of correct use of Quantitative Easing

Let's simulate an economic situation in which quantitative easing will be necessary. Let's imagine that the central bank is making every effort to keep inflation at the desired level. And moderate inflation, as is known, is an indicator of a healthy, developing economy, while deflation is a sign of stagnation.

The actions of the Central Bank do not lead to results - there is no growth in the economy and prices. Companies and private consumers do not feel confident in the future, so they are in no hurry to take out loans. Thus, the multiplication (increase) of money is suspended.

Due to the economic crisis, the state is cutting its expenses, which slows down business development. The number of jobs is also declining, so the population’s demand for services and goods is falling.

With less money left over, people are increasingly turning to their banks to withdraw their deposits. And trust in financial institutions is also falling.

The logic of the average investor is as follows:

“It’s better to keep your savings under your pillow; although they won’t bring in income, they certainly won’t be lost if the bank goes bankrupt.”

And banks are experiencing an even greater liquidity shortage.

If the central bank can no longer reduce the interest rate, then it enters into a mutually beneficial deal with commercial banks.

And if you imagine it as a dialogue, it would look something like this:

Banks:

“We have catastrophically little money, we are facing a series of bankruptcies, which will obviously be followed by a powerful economic collapse in the country.” Panic is growing in the market, what to do?

Central Bank:

— Do you need free money? I am ready to provide them to you. But you understand, I just can’t do this. But I can buy your assets.

Banks:

- Yes, we have bonds, debt obligations on which we should receive interest in a few years. But, alas, now they are a useless burden, and we are ready to get rid of them in exchange for cash liquidity.

Of course, the central bank does not buy all the securities at once; that would be too risky. The mitigation program lasts several months and even years. The ransom amount may increase or decrease depending on changes in economic conditions. But the main thing is that the economy receives money and can use it to revive it. Production is picking up again, people are getting jobs, consumer demand is growing, which means we can expect GDP growth. And all this thanks to the QE program.

Unit economics: calculation examples

Let's try to use each of the above formulas in practice. As an example, let’s calculate unit economics for an online store producing mid-price furniture.

Let's start with the CAC indicator. Let’s say we spent 100,000 rubles on advertising our online store in a month. After the advertising campaign we received 100 registrations. According to our formula, we spent 100,000 / 100 = 1,000 rubles to attract one client. Much or little depends on the price segment and type of product.

It is ineffective to calculate the LTV indicator in our example. This indicator is more suitable for Internet providers, hosting providers, that is, those companies that receive a subscription fee. These types of businesses are in contact with the consumer for a very long time. In our case, purchases will be rare, because people buy furniture for more than a year.

If we don’t need to calculate LTV for our organization, then ARPU is very useful. For example, in 6 months we sold furniture worth 5 million rubles. During this time we had 500 customers. 5,000,000 / 500 = 10,000 rubles. It turns out that on average our company receives 10,000 rubles from each user.

The figure is good, but we also spent money on advertising. To take advertising into account, we first calculate CPA (advertising cost/number of targeted actions). In our case, CPA is equal to CAC, since we consider registration on the site to be the target action (in your case this may not be the case), so CPA is also equal to 1,000 rubles. Now let’s calculate ARPU with advertising costs: 10,000 - 1,000 = 9,000 rubles.

And finally, let’s calculate the marginal income (CM) for 1 month. Within a month we attracted 90 clients. According to the formula, it turns out 90 x 9,000 = 810,000 rubles. This is our marginal income for the month.

Quantitative easing is an effective pill for the crisis

A crisis usually affects all sectors of the economy, and most importantly, it deprives people, banks, and companies of a sense of financial security. Everyone begins to act more cautiously, due to which capital turnover is reduced. Thus, a whole chain of negative consequences is launched:

• The demand for goods and services among the population is falling.
• Companies are reducing production.
• The number of jobs is reduced, which again reduces purchasing power and again reduces demand.

Thus, the economy goes into a tailspin. What is happening to the banking system at this time? Banks are beginning to issue fewer loans, as due to instability in the economy, the risks of non-payment of loans increase significantly. And even conscientious clients can deal a blow to banks when, fearing the negative consequences of the crisis, they actively withdraw their funds from deposits. As a result, banks end up with a shortage of funds, which is very dangerous for them and even threatens bankruptcy.

Remember, for example, the story of the Lehman Brothers bank, which happened during the 2008 crisis. It would seem that nothing threatened this financial giant, but it failed and went bankrupt, setting off a further chain of bank ruins.

The task of the state in such periods is to take control of the situation and prevent the banking system from collapsing due to investor panic. And in this case, quantitative easing as an emergency “anti-crisis pill” comes in handy. After all, only thanks to QE can you quickly inject the missing cash liquidity into banks and save them from “bleeding out.”

Now the world is experiencing the so-called coronavirus crisis, which has affected most countries and almost all sectors of the economy. It is obvious that the policy of quantitative easing is becoming relevant again, since leading central banks (such as the US Federal Reserve or the European Central Bank) have interest rates already close to zero and cannot be reduced further, and the economy is in desperate need of support.

Who needs unit economics

1. Startups . At the initial stage, it is important to properly plan your future business so as not to burn out in the first month.
2. When expanding your business . Any change in the production process requires new planning, otherwise you can build a large production, and in the process it turns out that there is no money to maintain it.
3. For investors . These guys believe in numbers. Unit economics will allow you to prove the profitability of the project with one or a couple of figures.
4. product promotion campaigns . Consumers are accustomed to thinking that the price of a product depends entirely on its cost. This is true. However, they do not always realize that the cost of advertising and PR is also included in the cost. That is why, when planning large promotions, you need to recalculate the unit economics so as not to go into the red.

Origins of the policy of quantitative easing

Who and when came up with such an original monetary policy instrument as QE? The developer of the concept of quantitative easing is considered to be Richard Werner, an economist from Japan with German roots.

In the 1990s, the Japanese real estate market was experiencing a serious crisis: the lending bubble was growing all the time and could burst at any minute. And then Werner came up with an idea: what if the Bank of Japan, through commercial banks, got into the game and gradually bought out the debts of construction companies in order to deflate the resulting bubble? It turns out that the wolves are fed and the sheep are safe - in the sense that the real estate market will receive additional funds, and the central bank will acquire debt obligations on which it will make a profit in the future.

It was the classic QE model - the least risky, as Werner argued. But, as often happens, in theory everything looks ideal, but in practice it is implemented a little differently.

When the Bank of Japan officially launched its first easing program in 2001, it began purchasing not third-party assets, but its own government debt. The Central Bank simply pumped more funds into the banking system in the hope that this would help revive lending and fight deflation. But the problems in the country’s economy were systemic in nature, and it was not really possible to stimulate its growth by simply increasing the money supply, so a few years later the QE program was curtailed.

Thus ended the first attempt to carry out Quantitative Easing, and although it was not entirely successful, the central banks did not abandon the idea of ​​QE as such - they simply began to implement it in a modified form.

Quantitative easing in Japanese: attempt No. 2

As you know, everything new is well forgotten old. And so, ten years later, in 2010, the Central Bank of Japan decided to introduce new measures to support the economy, and in fact, the same QE program. More precisely, first the financial regulator reduced the interest rate to almost zero 0.1%, and only then began repurchasing corporate and government bonds. True, this time the bank also bought riskier assets.

The purpose of easing was mainly to accelerate inflation (in Japan, unlike many other countries, the problem is not a constant rise in prices, but, on the contrary, deflation). Thanks to increased lending and increased consumer demand, prices for goods and services were bound to rise—and they did. After negative values ​​in 2009-2010, inflation rose to 4% by 2014.

From 2013 to 2016, monetary easing in Japan was in its final stages. Haruhiko Kuroda, who served as head of the Bank of Japan, promised to inject a record $1.4 trillion into the economy. Prime Minister Shinzo Abe supported him in this, which is why this stimulus package was called “Abenomics”.

According to the plan, the Central Bank was supposed to buy approximately $70 billion worth of government bonds monthly (which, of course, were printed). As a result, by 2022, the Bank of Japan held securities totaling more than $48 trillion on its balance sheet. Among the assets were bonds, loans, stock ETFs - all this together amounted to almost 96% of the country's GDP! There was simply no room for further mitigation.

The Central Bank began to wind down the QE program and even raised the interest rate for the first time in many years. Alas, it was not possible to solve all the problems in the economy, but thanks to the repurchase of assets, the bank managed to take control of the largest part of the public debt, which by that time amounted to 250% of GDP.

QE program in Japan

After 2 decades of growth of the Japanese economy by 10–15% per year, in the mid-1970s there was a decline in growth rates, which turned into stagnation by the early 1990s. It had a number of objective reasons: the growing share of the elderly population, the strengthening of the yen (from more than 350 per dollar to 100 and below), which caused serious problems for exporters. Finally, Japan has transformed from a developing country into one of the giants of the world economy, having exhausted the low base effect.

Against the backdrop of declining demand for products, the risk of deflation arose. The situation was complicated by the fact that the key rate of the central bank in the mid-90s was already close to 0, and there was nowhere to reduce it further. The Central Bank of Japan made its first attempts to carry out quantitative easing in 2001, starting the purchase of long-term government bonds. The volume of purchases from 2001 to 2006 amounted to 35 trillion yen. The program turned out to be ineffective: it had no noticeable effect on either inflation or GDP growth.

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A new round of the program began in 2010. This time the Central Bank acted more actively and, along with government bonds, bought riskier corporate bonds. But for the first time, a specific target was announced only in January 2013 - to achieve annual inflation of 2%. Officially, this stage of the QE program started in April 2013. At the same time, the Central Bank promised to achieve the target inflation level within 2 years. Due to the implementation of this program, by December 2022, the monetary base of the Central Bank of Japan exceeded 500 trillion yen ($4.8 trillion), i.e., more than the maximum amount of funds on the balance sheet of the US Federal Reserve, and for the first time in history equaled the annual GDP of Japan.

However, achieving the target inflation rate is still in doubt. At the end of the year, inflation was above 2% only in 2014, but economists attribute this to another reason. From April 2014, the consumption tax was immediately increased by 3% - from 5 to 8%.

The main effect, as in the United States, manifested itself on the stock market. Since the beginning of the 3rd stage of quantitative easing (2013–2018), the Japanese NIKKEI 225 index has increased 3 times.

Quantitative Easing, sir! How the Bank of England used QE

Although the UK economy is one of the strongest, it was also affected by the 2008 crisis. Therefore, in 2009, the Bank of England introduced its easing program along with a reduction in interest rates. As they say, for a double effect.

True, the British central bank also failed to implement the ideal QE plan. Although the Central Bank directed funds into the economy through private banks (as prescribed by the rules of quantitative easing), this did not help stimulate lending. Neither business nor the population rushed to take out loans, but interest in exchange trading increased. And the exchange rate of the pound, which was supposed to weaken, on the contrary, strengthened.

By 2014, the Bank of England had already printed over 400 trillion pounds to buy back assets. However, due to the rise in the value of the pound, inflation fell even below the forecast value, and the prospects of deflation even loomed on the horizon, which is even more difficult to combat. Therefore, the mitigation had to be completed.

Quantitative easing in the US: the best version so far

In the same crisis year of 2008, the US Federal Reserve put forward the idea that quantitative easing should not be limited to the purchase of assets within the country, and launched a large-scale QE program. The Fed bought assets around the world - most notably, cheap mortgages, which caused the crisis.

As a result, the American economy received $3.7 trillion, but these funds did not settle within the country, but were distributed throughout the global economy over the next few years. And although a number of experts criticized the American-style easing program, it is still considered the most successful attempt to stimulate the economy.

Let us note that the ideologist of the easing program in the United States was the then Fed Governor Ben Bernanke, and his assistant was Janet Yellen, who took over as head of the Federal Reserve after him. She also initiated the winding down of the program in 2014, citing the fact that there was no longer a need for QE. Now Yellen is back at the helm of the Fed, but now she has to cope with a crisis that is probably even worse than the one in 2008.

Quantitative easing in Europe: almost like in the USA, only more modest

When the American central bank was already completing its stimulus program, the European one was just beginning to implement quantitative easing.

In 2015, the ECB launched Quantitative Easing following the example of the United States, only on a much more modest scale - one trillion dollars for the purchase of assets, including the government debt of eurozone countries.

The European Bank purchased only assets with a good investment rating and a maturity from 2 to 30 years. Exceptions were made only for bonds of those countries that received assistance from the ECB and the IMF (for example, for Greece).

A special feature of this program was that the ECB acted on behalf of all national banks that are part of the eurozone. But not all of them were in favor of quantitative easing. Thus, the Bundesbank (German Central Bank) was against QE, and the European bank had to make concessions to it - decide that the bulk of the purchased assets would be distributed among national banks. So Germany got the right to choose which of all the assets acquired by the ECB, its bank keeps for itself. Well, the country that is the locomotive of the pan-European economy can well afford to lay claim to the most “tasty” financial piece.

In 2022, the European Bank announced the winding down of stimulus measures, but continued to hold assets purchased during QE on its balance sheet.

Coronavirus crisis 2020 and a new era in the history of QE

The pandemic and the economic crisis that followed it did something that probably no one had managed before. For the first time, the world's largest central banks began to act in concert and play not against each other, but all for one - and against the global crisis.

Financiers are already calling March 15, 2022 a historic event. On this day, the US Federal Reserve, the European Central Bank, the Bank of England, the Bank of Japan, the Bank of Canada and the Swiss Central Bank jointly decided to carry out the largest quantitative easing to minimize the economic consequences of COVID-19.

The plan they approved consists of three points:

1. Reducing interest rates to 0.25-0%.

2. Repurchase of assets (mortgages and bonds) totaling $700 billion.

3. Reducing the cost of swaps to make it easier for banks to obtain dollar liquidity.

Once again the result was not as expected. Stock markets continued to fall, and the most reliable asset, according to investors, was again American government bonds with a 10-year maturity. There is still increased volatility in the foreign exchange market, which indicates that market participants are feeling insecure. But it may be too early to judge the results of this quantitative easing, so let’s not rush to conclusions about its effectiveness or ineffectiveness.

Quantitative easing in developing countries

Until 2022, easing programs were carried out by countries with developed economies, but in 2022 the situation changed, and central banks of developing countries began to use this financial instrument for the first time. Is the effect of quantitative easing the same for developed and developing economies? In general, yes, but there are some nuances. First of all, this concerns the goals achieved. For example, for a weaker economy, QE needs to:

• balance the sale of government bonds by foreign investors;
• stop rising bond yields;
• demonstrate the state’s readiness to support the economy in difficult times in order to dispel skepticism among the population and business.

Another difference in the implementation of monetary stimulus in developing countries is the rate of economic growth. For developed countries such as Germany or Japan, even a 2% increase in GDP per year is considered quite a good indicator. And for countries like India, Russia or China, development of 6-7% per year is necessary, which means that more cash injections may be required for this.

What can cause growth in a developing economy? First of all, increasing production capacity. The country needs to increase production volumes to meet the growing demand from the population. And if in highly developed countries modernization and robotization are used for this, in developing countries, due to the lower qualifications of labor resources, production growth can be achieved only by creating additional jobs.

But sooner or later, quantity must develop into quality, because it is impossible to constantly increase the number of workers or, say, sow more and more fields for a larger harvest. There comes a time when technological improvement is needed, for which the state also needs money. Therefore, quantitative easing must be more effective and intensive in order to provide the banking system with such a large amount of liquidity.

Calculators for calculation

You can do all the calculations the old fashioned way on paper or in Excel, but there are also many calculator services.

Here's a small list:

• qmobi.agency is a simple calculator for calculating LTV. Here there are detailed instructions on what indicators are needed for the calculation. You only need to insert your indicators, and the program itself will calculate your LTV.
• qmedia.by - this calculator can calculate the total profit based on various indicators, and will also help predict future earnings.
• retailengineering.ru - can calculate profits from marketing campaigns.
• ue.jet.style - allows you to calculate unit economics based on 7 business data. It uses a complex calculation formula, so you can take into account many nuances and get an accurate forecast.

No matter how many formulas we present, the point of unit economics is to consider in detail the resources spent and the income that can be received from the sale. The whole point lies in the calculation of expenses. In any business there is a sale, but the price you paid to meet the client, how many promotions and discounts you offered to convince him to buy a product or service, can significantly affect the profitability of the business.

Not so simple! Why is quantitative easing criticized?

The easing policy has not only supporters, but also opponents among economic experts. Those who do not agree with the policy of injecting money into banks by purchasing government bonds have their own arguments - and quite weighty ones at that.

The liquidity that banks receive after selling their assets does not go towards intensifying lending, but is used more often for stock market speculation.

This position was expressed, in particular, by economist Jesse Hunt. He observed the results of QE in the United States and saw that easing policies were not beneficial to businesses and consumers, but to financial corporations, commercial banks and investment funds.

Since in the USA since 2008 the interest rate has been at a very low level, banks issue loans at a small interest rate, which is not particularly profitable for them. It turned out to be much more profitable to give the funds to their trading divisions, which used this money to make money on quantitative easing in the Forex market. Thus, the real economy received much less support than expected.

Central banks often do not have a well-thought-out asset purchase strategy.

In 2013, researchers A. Vissing-Jorgensen and A. Krishnamurthy published a study on the ineffectiveness of the US easing program due to the lack of specific goals at the Federal Reserve. Investors did not understand why the financial regulator was buying some securities and refusing to buy others. This only increased uncertainty in the market and kept players from taking active action.

When conducting QE, it is necessary to take into account the state of the banking sector and other economic problems that do not directly depend on the lack of liquidity.

Harvard University professor Lawrence Summers criticized the CEB for its decision to carry out quantitative easing in 2015. In his opinion, in the eurozone the banking system is not flexible enough to increase lending volumes, so additional financing for private banks will not benefit the economy. And some experts noted that it was not possible to successfully carry out QE in Europe due to the fact that the repurchase of bonds was aimed not so much at supporting the real sector, but at easing the debt burden of the eurozone countries.

And these are not all the questions regarding mitigation programs. So, for example, it is not clear where the funds allocated by the central bank end up: in the national economy or in the economies of other countries? And what to do with the excess money supply when QE has to be curtailed?

However, despite all the controversy surrounding this monetary instrument, Quantitative Easing does not lose its popularity. Each time, central banks hope to launch this program more successfully than before. After all, in the end, the right decisions come with practice, and there wasn’t much time to practice - QE was developed only about 40 years ago. True, in the case of central bank decisions, the cost of a mistake can be very high: the medium- and long-term prospects of the economy of a country, region, and even the world as a whole largely depend on the choice of monetary policy.

The advantage of the system is simplicity, the disadvantage is that it doesn’t work very well.

As one of the canons of “Economic Theory”, dating back about two hundred years, says, the primary tool for managing the economy for monetary authorities is the interest rate. By changing its size, the regulator makes money cheap or expensive. But when the money supply reaches trillions of monetary units, interest rates fall to below 1% per annum.

There was a lot of money, but it no longer fulfilled the function of accelerating production and satisfying consumer needs. The classical money market, described in canonical textbooks, simply ceased to exist with the failure of the interest rate instrument.

As a matter of fact, the operation of the money machine in the “7 days a week” mode has always been considered by the monetary authorities as a gross abuse of power and almost a crime.

An oversupply of money supply causes inflationary rises in prices, disruption of economic equilibrium, neutralizes the stimulation of productive labor and increases social and property disunity.

How does quantitative easing affect Forex quotes?

Exchange rates on Forex change under the influence of a number of fundamental factors, including monetary policy. How does the market react to news about quantitative easing?

If the country’s Central Bank announces the start of an easing program, then the exchange rate of the national currency, as a rule, decreases in relation to the main competing currencies. And that's why:

1. Quantitative Easing is implemented when there are serious problems in the country's economy. And for investors, this is a signal to sell off the currency of this state - after all, it is unknown when the recovery will begin.

2. To buy back securities as part of the easing program, the central bank has to print additional money, and an increase in the money supply leads to a weakening of the exchange rate. But when the central bank winds down the QE program, this usually leads to a strengthening of the exchange rate. Here are a few examples of how the market reacted to the easing.

In December 2008, the US Federal Reserve launched quantitative easing, as a result of which the EUR/USD rate increased by 2 thousand points on the Forex market within a week. But the very next month the exchange rate leveled off again, and then over the next six months the euro rose again against the dollar.

In 2013, a new round of quantitative easing program began in Japan, and the JPY exchange rate against the dollar fell by almost 900 points. Then within 1.5 years he recovered.

In January 2015, the ECB began purchasing government bonds, which led to a weakening of the euro against the dollar by 500 points. However, the fall lasted only 2 days, then the recovery began.

The UK began easing in March 2009, and in 2 weeks the GBP/USD rate fell by 600 points. Then, over the course of 4 months, the pair recovered and entered the range.

As you can see, the market’s first reaction to QE is the desire to quickly get rid of excess currency. But then the situation stabilizes, and the exchange rate returns to its previous value within a few weeks or months.

How to make money on quantitative easing: 7 life hacks for a trader

How should you, as a trader, react to the actions of central banks? Here are short instructions that will help you trade profitably:

1. Pay close attention to the economic calendar. It shows the dates of meetings of the world's largest central banks. These days you can make money from quantitative easing in the Forex market.

2. Pay attention not only to the meetings themselves, but also to the statements of the heads and representatives of central banks - especially the ECB and the US Federal Reserve. Often in their statements they hint or explicitly talk about an upcoming tightening or easing of monetary policy, and even after these words, the exchange rate may change.

3. Try not to open trades immediately before the speech of the heads of central banks or the announcement of the results of the meeting. At this time, volatility in the market can go through the roof, and there is a high risk that your positions will be quickly closed by stop loss.

4. If the central bank's decision to deploy, strengthen or close the quantitative easing program coincides with the forecast (that is, with what most financial analysts expected), then the market reaction to this will be relatively weak. That is, exchange rate jumps will be insignificant. But when the Central Bank makes an unexpected decision (for example, it expands QE, although everyone expected to curtail the program), then the rise or fall of quotes will not be long in coming. Take this into account when trading!

5. If you are not a supporter of risky trading on high volatility, do not rush to open trades as soon as the market decides on its reaction to the news about the easing. Let’s say that if the Bank of England announces the start of the QE program and the rate of the GBP/USD pair actively goes down, this does not mean that you need to immediately open a position to sell the pound. Wait, maybe a rollback will occur after a while.

6. In the period shortly before the release of news about QE and immediately after it, do not rely solely on technical indicators. The release of important fundamental news can lead to false signals.

7. If you are trading a robot, then keep in mind that it can also fail during a sharp increase in volatility. In this case, it is better to monitor the transactions yourself and, if necessary, close them on time.

How to define your unit

This is one of the most important elements on which the formula that will need to be used in calculations depends. It is this element that causes difficulty for novice businessmen.

The type of business unit depends on the specifics of the company’s activities. There is no comprehensive scheme for whom and what type is suitable. We can only give general recommendations.

The first type of unit is a unit of goods . This type is suitable for organizations that sell goods (it doesn’t matter whether they produce the product themselves or are a distributor). One product is taken as a basis. This is the simplest and most common type of unit.

The second type of unit is the client . This type is suitable for Internet providers, when each client who uses Internet services is a unit. Also, this type of unit is suitable for organizations that work on a subscription fee, for hourly paid workers (outsourcers).

The third type is a contract . This type of unit is suitable for companies that sell expensive equipment. It is difficult to make money selling expensive tools, so the main income is the sale of additional services: installation and maintenance.