Online Foreign Exchange Trading

The foreign exchange markets (Forex) were developed to allow for foreign trade. A company in Japan uses the Yen. They sell to a company in Germany that uses the Euro. The buyer of a product in an international transaction commonly needs to convert his or her currency to that of the seller in order to make payment. Online foreign exchange trading takes advantage of the international Forex market to carry out such transactions. Speculators also take advantage of online foreign exchange trading. They analyze using fundamental analysis of Forex pairs and watch changes in market sentiment using technical analysis of Forex pairs. Using a variety of strategies, traders seek to stay ahead of the market and gain profits in online foreign exchange trading.

Currencies are Traded in Pairs

Profitable online foreign exchange trading works best with a volatile Forex pair. Traders typically look for a pair of major Forex currencies that that trade in high volume and provide good liquidity. Then they look for volatility which can lead to profits. The trader can do the work himself or subscribe to an alert service. The fact that one trades one Forex currency against another is obviously because the system is set up to facilitate foreign trade. For the speculator in currency markets this means that he or she must analyze the economies, trade figures, employment numbers, politics, and monetary policy of two separate nations and compare them one to another. When, for example, the price of oil rises the Japanese Yen may suffer as Japan is not an oil producer. However, Canada is a producer of oil and natural gas. Thus a bump up in oil prices may drive the Canadian dollar higher against the Yen. However, there are no big energy producers in the European Union. Thus a rise in oil prices will negatively affect both Japan and the EU. In such a case there is little trading opportunity.

Lighting a Candle Instead of Cursing the Darkness

In this case the candles we speak of are Japanese candlesticks. This is an old trading signal system that gives traders a clear view of emerging market sentiment. Using Candlestick patterns in Forex trading helps traders predict market reversals and trade accordingly. Although the system evolved in commodity trading in ancient Japan it is used today for Forex, stocks, and commodities. The system is useful because of the tendency for market patterns to repeat themselves no matter what the underlying fundamental cause. There are, in fact, purely technical traders who only use technical analysis tools like candlestick signals to guide their trading. These traders believe that the fundamentals are so quickly incorporated into market pricing that only technical signals can lead to profits.

Practice Makes Perfect

Online foreign currency trading is part research, part learning a set of skills, and part performance art. One can learn online foreign exchange trading using recorded data on a trade station. In fact, simulation trading using real historic data is a great way to learn to ins and outs of online foreign exchange trading. However, the real world is different that simulation trading. When a trader is risking his or her money in live trades the twin demons of fear and greed tend to show up and muddle the trader’s thinking. Learning to keep a clear head, treating online foreign exchange trading as a business and not as gambling, always checking results, and upgrading strategy as necessary are essential to profitable trading foreign currency.