Make Money Trading Currencies

Trillions of dollars’ worth of currencies are traded every business day in the currency markets of the world. One can make money trading currencies just like it is possible to make money trading stocks or commodities. Sound fundamental and technical analysis of Forex currencies help traders identify market inefficiencies from which the trader can derive a profit. National and world events drive currency rates. However, one currency is traded against another so a trader needs to compare the effects of world events on the Yen versus the British Pound or US dollar versus the Euro. Profitable currency trading requires the same approach that success stock trading does. Understanding the fundamentals that drive prices, such as balance of payments, monetary policy and strength of the economy is a starting point. Then to make money trading currencies one needs to take into consideration fluctuating market sentiment. This is done with statistical analysis of evolving price patterns. In a sense market history always repeats itself. Similar market situation evoke similar price patterns. Those who learn to read these patterns make money trading currencies.

What Currencies to Trade

The US dollar is part of eighty-seven percent of all Forex trades. Next in line are the Euro, Yen and Pound. This list shows the most traded currencies in the world.

United States Dollar, USD, 87.0%
Euro, EUR, 33.4%
Japanese Yen, YEN, 23.0%
Pound Sterling, GBP, 11.8%
Australian Dollar, AUD, 8.6%
Swiss franc, CHF, 5.2%
Canadian Dollar, CAD, 4.6%

These seven currencies are the majors. Major currencies trade in higher volume and greater liquidity than other currencies. Many traders make money trading currencies by trading only the majors. Statistical analysis, also called technical analysis, works well with these currencies because of their high trading volume.

The Process

Traders pick a volatile currency pair, analyze fundamentals and use technical analysis indicator to predict short term price moves. Fundamentals work for what is called swing trading. This works out over days, weeks or months and is based on changes in the basics that drive currency value. Technical indicators are useful for intraday trading in which the market constantly is inefficient and then corrects itself only to become inefficient again. Technical traders make money trading currencies no matter what the fundamentals and take their profits in little pieces from the constant up and down static of the market.

Minor Currencies

Minor currencies trade in low volume and are not really amenable to a technical approach. Rather a trader who wishes to speculate in a minor currency pair needs to be very well versed in the economies, monetary policies and politics of the nations whose currency pairs he trades. Swing trading is the approach that helps make money trading currencies in these situations as a trader stakes out a position and then waits days, weeks or months to take his profit or cut his loss.

Risk Management

Successful traders know that it is impossible to make money on every trade. As such it is important to use Forex trading strategies that reduce the risk of loss as well enhance the chance of gain. For example a smart trader never puts all of his trading capital into one trade and a smart trader always sets his trading stops so that he can take a timely profit on the upswing and cut loss when prices fall. Smart traders keep in touch with the market and day traders do not leave their desk while a trade is taking place. When prices go up a trader commonly resets his stops, for example, in order to make room for a larger gain and limit his downside risk.