Foreign Exchange Trading
Foreign exchange trading is necessary for world trade. In order for a US company to purchase machine parts from Germany the company needs to convert US dollars into Euros. In order for a Japanese airline to buy a Boeing jet it needs to convert Yen into US dollars. The origin and basis for foreign exchange trading is world trade. However, by learning how to trade foreign currency a speculator can profit as the currencies of the world rise and fall. A currency speculator watches both the fundamentals of various currencies and technical factors that drive market prices. For example, the dollar has risen recently at the prospect of higher US interest rates. Traders routinely wait to see the minutes of the Federal Reserve Board meetings to decide whether the dollar is likely to rise or fall. And currency traders watch day by day, hour by hour and even minute by minute price action. They engage in technical analysis of major Forex currencies. How to trade Forex successfully is to learn the basics of currency valuation and then the specifics of individual currencies. While companies doing business across borders trade specific currencies, speculators commonly seek out the most volatile currency pairs in search of profits.
One Currency Versus Another
The foreign exchange market provides an orderly means of providing a fair rate of exchange from one currency to the other. Thus foreign exchange trading is not just a matter of deciding if the US dollar will strengthen or weaken. It is a matter of how the dollar will do again other major currencies such as the British Pound, Yen, Euro, Swiss franc, Canadian dollar, and Australian dollar. Thus a currency speculator needs stay abreast of employment reports, monetary policy, politics, and balance of trade for both nations whose currencies he wishes to trade.
Where Does Foreign Exchange Trading Occur?
There are three major Forex markets, New York, London, and Tokyo. It is theoretically possible to engage in foreign exchange trading around the clock during the business week. In today’s electronic era foreign exchange trading starts from your trade station computer. A trader picks a Forex pair and follows both fundamental and technical factors as he buys and sells one currency with another. Because of the internet a trader in Omaha, Nebraska can trade in New York, London, Tokyo or all three depending on his supply of coffee.
Fundamentals, Fundamentals, Fundamentals
Understanding Forex fundamentals is basic to making money in foreign exchange trading. There are technical traders who believe that market pricing evolves into repetitive patterns and reading the patterns is all that is necessary for profits. However, the fundamentals such as currency reserves and balance of trade are what eventually determine price and the rest is speculation.