Profit from Trading Currencies

The dollar goes up in foreign currency trading and then it goes down. Each time it moves someone makes a profit from trading currencies. Is there any reason that you cannot profit from trading currencies? Forex currency rates are set by trading in the three major markets, which are London, New York and Tokyo. Traders buy one currency with another. These currencies are referred to as Forex pairs. Major Forex pairs are the most traded currencies of the world. Here are the major pairs and their trading symbols;

· US Dollar, USD
· Euro, EUR
· British pound, GBP
· Yen, YEN
· Swiss franc, CHF
· Canadian Dollar, CAD
· Australian Dollar, AUD

Minor currencies are all of the rest. These include the currencies of nations with substantial economies such as Brazil, Chile, Mexico, Russia, India, South Africa, South Korea, Norway, Sweden and China. And minor currencies include those of Iraq, Yemen, Ghana, etc. Many of the minor currencies of the world only trade against the US dollar as there is virtually no market for trading the currency of Ghana versus Yemen, for example. Eighty-five percent of all Forex trades include the US dollar. But, how can you profit from trading currencies?

Major Forex Pairs

The technical analysis of Forex currencies is a way to profit from trading currencies. This is a statistical approach to currency trading. Currencies, like stocks and commodities, trade in patterns. Statistical software is often able to predict short-term movement in the markets based on comparisons with historic trends and patterns. This approach is more successful with currency pairs that trade in high volume and liquidity. Thus technical analysis is more likely to provide a profit from trading currencies when the currencies are both majors.

Minor Forex Pairs

There can be substantial price movement in minor currencies versus the majors. A couple of years ago the Colombian peso climbed fifty percent in value versus the US dollar. In this case the more important tool is fundamental analysis of currencies. The fundamentals that drive Forex currency values are the strength of the nation’s economy, central bank monetary policy and both social and political stability of the nation in question. When the right factors are in place and the trader has done his homework it is possible to profit from trading currencies, minor versus major. The thing to remember in this case is that Forex trading volume of minor currencies may be low so that it may be hard to get out of a trade in a timely fashion. Thus traders tend to avoid short term trades with the minor currencies.

Currency Trading Is a Business

Many years ago it was common to hear that someone was playing the markets. This is a really bad approach if you want to profit from trading currencies. Currency trading is a business. Traders who do their homework and show up everyday to trade tend to make money. Those who develop a strategy and stick to it tend to make money. They tend to avoid the twin demons of fear and greed that spell doom for many other traders.