How to make a profit exchanging Peruvian soles for US dollars?

To read this section, it is recommended to read first the section EUR/PEN, because there we explain in detail every step. Here we directly show the most important results. Our statistical data analysis is based on investing.com data, which is plotted below:

In contrast to the euro's case, we see that the USD/PEN chart, within the last 10 years, had periods of great volatility, reaching a certain stability in 2016, see Fig. 2 (left). In this case, setting the average bounds considering the last 10 years would give us a large margin of error; therefore, in situations like this it is recommended to study only the region of greatest stability, that is, from the year 2016 to the year 2018. In this period we set an upper bound of 3.38 and a lower bound of 3.24. With these data, let's now focus on the image on the right, and let's consider that we are in March 2018. In this month, the dollar has fallen to 3.23 soles, below the lower bound that we set; therefore, it is feasible to assume that it has to grow back. What do we do? We buy dollars! In the case of euros, it was different, we sold euros because it had reached the upper bound, and in this case, we have reached the lower bound. Let's say that we buy 1,000 dollars, so we pay 3,230 soles. What do we do next? We wait for the exchange rate to approach the upper bound. In August 2018 we can see that the USD/PEN exchange rate has increased to 3.30. Our upper bound is at 3.38, so we can wait or just sell the dollars in August for fast gains. In this case, for simplicity, we opt for the latter; therefore, we obtain 3,300 soles in exchange. Since we initially paid 3,230 soles, then from March to August we made a profit of 3,300 - 3,230 = 70 soles that appeared out of thin air.

Now let's move on and check the news. Why did the dollar grow in the middle of 2018? This was due to the policies adopted by US President Donald Trump. In his attempt to improve the economy of his country, he made important changes with regard to imports and exports of products and raw materials. Although this created a trade war with China, in the short term it benefited the country and therefore its currency appreciated compared to the others. If we would have known this information in advance, we would have chosen not to sell the dollars at 3.30 soles, but instead, we would have waited a little longer, in that way we would have obtained larger profits. This is the advantage of making use of the news.

The third point to discuss is the buying and selling prices.

Similar to the EUR/PEN case, the data shown in Table IV were collected from Argenper. In the fourth column, we have the difference between the selling price and the buying price (Δ) and in the fifth column we have placed the values ​​of Fig. 2 (investing.com).

In our first example (considering the data from investing.com) we bought 1,000 dollars in the month of March at the price of 3.23 soles. Let's specify that it was on 03/29 (in light blue in Table IV). Although investing.com shows a value of 3.23, the exchange currency agency will give us instead 3,240 soles because 3.24 is its selling price. Then we sold 1,000 dollars in the month of August. Let's specify that it was on 08/16 (in orange in Table IV). Although investing.com shows a value of 3.30, we receive 3,270 soles because 3.27 is its buying price. In the end, we make a profit of 3270 – 3240 = 30 soles, which is much less than 70 soles (the profit made using investing.com data). In the real world, as we mentioned in the EUR/PEN case, we will always encounter these buying and selling prices, therefore, our profits will always be affected. How much? It depends on the value of Δ. If on a given day the selling price is y, then the buying price will be y - Δ. Considering Table IV we can generate the following table for the date 03/29:

In Table V, the data in the first row correspond to the buying and selling prices ​​of Argenper, from which we obtain Δ and define the neutral value as the arithmetic mean, i.e., (sell + buy)/2. In the second row we start by defining the value of investing.com as the neutral value and considering the same Δ we calculate the buy and sell prices, i.e., buy = neutral - Δ/2 and sell = neutral + Δ/2. What can we conclude from this? Well, if we choose the value of investing.com and from it, we formulate possible buying and selling prices, these will not coincide with those given by the agency; nonetheless, these prices ​​will be close to the agency prices and therefore they can be helpful to get an idea of potential profitable dates. Let me explain, to recover our soles after having bought dollars in Argenper on 03/29, we cannot do so on the same day because the buying price at the agency is less than the price at which we bought, that is, we would receive 3,210 soles in exchange for the 1,000 dollars that we initially bought for 3,240 soles. This would leave us at a loss. Keep in mind that the buying price of the agency is the one we use to sell our dollars and the selling price is the one we use to buy them, it may be confusing but is a matter of what is considered the reference point. To not be at a loss, what we must do is wait for the selling price of 03/29 to be equivalent to the buying price of a later day, that is, the currency must appreciate in Δ soles to just recover our money. In Table IV we see that this happens on 05/05 (in red in Table IV). Therefore, for that date, we would have the following table:

In Table VI, for investing.com we have kept the same Δ as on 03/29. Why? Because we are assuming that we went to the exchange currency agency in March and we did not go back, that is, in our reasoning the Δ did not change. However, as we can see in Table IV, the agency can alter the value of Δ at will and it is something that we should keep in mind. Curiously, in this case, it is not enough to know the neutral value of investing.com to deduce that on 05/05 we could already be recovering our money. Unlike the EUR/PEN case where for that date the reference value given by investing.com was enough, in the USD/PEN case the value of investing.com tells us that we still have to wait a little longer because the buying price is still at 3.255, however, the agency would already allow us to get the money back because its buying price is at 3.24. This is a clear example that the value of investing.com only offers a theoretical approximation and therefore it is convenient from time to time to go to the agency to check the real exchange rates. You may think that I'm contradicting myself with respect to what I said in the EUR/PEN case, but the truth is that I'm showing you two examples where in one case the referential value of investing.com is sufficient while in the second case, it is not. In general terms, investing.com will only give us an approximation and because of this, it is better to know the average Δ of the chosen agency. For example, looking at Table IV we can obtain the average of all the Δs given by Argenper and deduce that an optimal value to consider would be Δ = 0.04.

Forecast to buy and sell dollars

To finish, let's predict when we should buy and sell dollars to make some profits. We showed that the lower bound is 3.24 and the upper bound is 3.38 (values ​​from investing.com). These values ​​are very important because every time the dollar approaches them, it will be an ideal time to buy and sell, respectively. Keep in mind that these bounds will hold for a long time until the next global crisis, that is, regardless of the date you are reading this article, you will be able to use the data given here to make a profit, e.g., in our analysis Δ = 0.04. So, if your agency has a similar Δ you can proceed to buy at 3.27 (value of investing.com), which implies that the actual buying price is 3.27 - Δ/2 = 3.25 and the selling price is 3.27 + Δ/2 = 3.29, that is, you will buy 1,000 dollars with 3,290 soles and then you will wait for the neutral price to reach 3.35 (value of investing.com). In your exchange currency agency, this will be reflected with a buying price of 3.33 and a selling price of 3.37. You will proceed then to sell your 1,000 dollars at the value of 3.33 obtaining a profit of 3330 - 3290 = 40 soles. You can repeat this process many times. Your profits will be higher if you find an exchange currency agency with a Δ lower than 0.04. If you do, you could even lower your risk considering your neutral values as the agency values, that is, buying at 3.29 and selling at 3.33 (values of investing.com). Eventually, in the agency, this would give you a null profit with the given Δ, but with a smaller one, you could still profit from the difference. What I propose to you now is, to check the USD/PEN exchange rate, what can you say about the rate in the last months and in the last years? What can you tell me about the bounds? If the pattern continues, it may be the right time to buy or sell. And I repeat, in the event of a global crisis, the data given here will no longer be useful because after a crisis new bounds have to be defined. An example is given in the article: "How to exchange currencies during a global crisis." The final advice that I can give you is: "Be patient, currencies always oscillate, but sometimes you have to wait a lot until you start making profits."