Trading Foreign Currencies

Trading currencies is a necessary part of international business. Trading currencies is also a way for speculators to earn a profit. Currency markets (Forex Markets) exist in order facilitate world trade. The relative value of one currency versus another varies with the relative strength of the two economies, economic policy politics and central bank monetary policy. As these factors change so do the relative values of the US dollar versus the British Pound, the Yen versus the Swiss franc and so forth. Trading currency options is common in the world of commerce as companies seek to hedge currency risk. When a company places an order for machine parts it may need to wait for six months to a year for delivery. It will pay the bill in the currency of the nation of origin of the parts when the parts arrive. If the relative values of the two currencies changes significantly in the meantime it can mean a substantial loss which is why those folks commonly use options to hedge risk in trading currencies. On the other hand speculators look for volatile markets and typically trade over a much shorter term.

Fundamentals and Technical Analysis of Price Patterns

Fundamentals such as employment numbers, balance of trade, currency reserves and central bank policy are what set the relative values of foreign currencies. However, traders seek to anticipate what these fundamentals will be in order to set up profitable trades. One can spend a lot of time researching all of the fundamentals and still be wrong. Or one can watch the market closely and use what is called technical analysis. Statistically based technical analysis is not affected by greed or fear, the common demons of trading psychology. By developing and following Forex technical strategies the trader can audit his trading results and modify the strategy as needed. The Forex trader does not need to develop the mathematics underlying Forex technical strategies. Rather the trader can modify parameters in his trading software to allow for more latitude from different variables used in calculating equations and offering trading suggestions. A successful Forex trading system will be based upon technical indicators. Trade station software will have immense amounts of real market data. In order to test various Forex technical strategies the trader need only try them out in simulation trading in various real historic environments to asset their efficiency in delivering profitable trading opportunities.

Day Trading Currencies

Day trading currencies is often more profitable than taking a position and waiting for fundamentals to change. A skilled analyst of market fundamentals may be right on the money and eventually make a tidy profit. However, a trader skilled at market technical analysis can often profit from every up and down of the market as it makes its way to an eventual price level. Smart currency traders are aware of the fundamentals and use them to guide their trading. Then they keep abreast of market sentiment via technical analysis to profit from the daily ups and downs of trading currencies.