Make Money Trading the Forex Markets

A group of
Japanese tourists visit New York City and pay for their hotel rooms and meals
with a credit card issued by a bank in Japan. A resident of Germany buys a
Kindle book for sale on the site, paying in euros. The author lives
in England, so Amazon pays the author royalties in British pounds. When he
needs cash, an Australian expat living in Mexico goes to an ATM machine. His
account in Australia holds his funds as Australian dollars, but the ATM machine
issues him Mexican pesos. A Canadian woman buys a new Toyota at her local
dealership, paying in Canadian dollars, but Toyota must pay its line workers in
Japanese yen.
In all these
situations, the currency from one country is exchanged for the equivalent amount
(minus bank fees, of course) in the currency of another country. Decades ago,
these rates remained fixed, but now they float. They are constantly changing.
Therefore, it’s possible for smart traders to make a large income by
understanding how currencies fluctuate in value against each other, and
figuring them out on a short-term basis.
The forex
market has many advantages over the stock market. First, it’s huge. Volume
averages nearly $4 trillion a day. That dwarfs the world’s stock and bond
markets. Because it must accommodate banks, businesses and traders around the
world in all time zones, it remains open 24 hours a day, Monday through Friday.
You keep trading as long as you’re able. That volume also means your orders
always get filled. And as you become more successful and your working capital
grows larger, you can scale your order size up to whatever your broker such as can handle. You don’t have to worry about your
order being too big to get filled or moving the market against you.
Also, there
are only a few currencies. You don’t have to pick out one company out of
thousands and analyze its balance sheet and income statement or anything like
that. You can stick with the major currencies, including the US dollar, the
Japanese yen, the euro, the British pound, the Canadian dollar, the Swiss franc
and the Australian dollar. However, you do have to keep track of economic and
political conditions in those countries. These are constantly changing. You
have to track the results of elections, central bank statements, business
activity and interest rates. You may choose to trade using only chart patterns
because the chart patterns reflect all relevant information on the currencies.
That is your choice, but make sure your system is time-testing and gives you a
true edge on the other market participants. Who else trades currencies?
The interbank
market primarily consists of the banks. Some of their currency buying and
selling is on behalf of their business customers. However, banks have their own
proprietary trading desks. They are seeking to make a profit using their own sources of information regarding the changing, relative
supply and demand of each currency.
companies also produce a large amount of volume. The main basis for the foreign
currency market is to enable companies to do business in other countries.
Hedge funds
create a large amount of what’s called speculative trading. Unlike companies,
they do not really wish to trade their US dollars for yen or euros for pounds.
They are speculating on the trends. Of course, hedge funds have a lot more
money to speculate with than individual traders.
firms must often help their clients take positions in other countries. It’s a
good idea to diversify your investment portfolio with stocks and bonds from
countries around the world.

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