Online Currency Trading – Forex Trading Strategies

Forex Trading For BeginnersForeign Exchange Currency Trading

Current monetary policy allows for free and open exchange of currencies at market rates for most US and European trading partners. In essence, by looking at the exchange rates, and by prognosticating on foreign and international news, foreign exchange traders are making gambles that currency valuations will change in the direction they’re anticipating in the future.

Where the gamble comes in is predicting the time frame. Billions of dollars are run through currency exchanges every day, trying to make money on changes in the market that come with 2 seconds of notice for a fraction of a percentage point – and if you’re the sort of person who can handle that kind of job, you can make a LOT of money at it with properly honed instincts.

A smaller scale foreign exchange currency trading strategy is to do positional buys. For example, right now the Euro is slightly lower than its historical average against the dollar. If oil prices rise, it’s likely that the dollar will drop against the Euro, slightly. If you invested a thousand dollars into Euros at $1.20 per Euro, you’d have 833.33 Euros. If the Euro rose to $1.25 per, your 833.33 Euros would sell for 1040 dollars and some change. Five and six cent shifts in the dollar to Euro exchange rate can happen weekly; the trick is knowing how to play them, and to watch long term trends in addition to the short term bustle. One of the significant advantages of buying foreign exchange investments is that you’re always guaranteed to have something left; it minimizes your risks of a catastrophic loss. It can also get you a rate of return of 5 or 6% in a month, as opposed to a year. Of course, it can also depreciate in value by 5 or 6% in a month as well…

Spotting trends is what separates the good forex traders from the mediocre ones, though there are some tricks of the trade.

The first, if performing a buy-and-hold strategy is to make sure that whatever currency you’re buying is held in a mutual fund in its native currency exchange – this smoothes out any downturns in the exchange rate, and can become an added bonus when you compound the interest with the difference in the exchange rate when you’re done. This does require a substantial initial investment – usually $5,000 to $10,000 or more.

The second is the stop-loss order; in essence, this says “Stop the trade if the price changes outside of the following band”. Given the automatic arbitrage systems, this is useful to minimize risks.

In terms of trading volatility, you need to decide if you’re going to be a day trader, or a position trader. If you’re looking at making this a career, day trading is the way to go; it’s very easy to make (and, alas, lose) fortunes doing rapid trading on the currency exchanges. You’ll need to be well versed in the rules for individual exchanges, when they open and close (currency exchanges are mostly based out of London, and Singapore’s exchange is important for the Asian market). You’ll also want to keep well versed not just on financial news, but world events. Changes in oil prices, trade policies, union rules, even fashion trends, can foretell trends on how currency exchange rates will move.

Position trading (as described above) is better for single investors working the markets for themselves.

An important consideration on all foreign currency exchanges is to remember to buy low and sell high. Don’t cling to investments for patriotic or sentimental reasons; that’s the surest way to lose your shirt. It’s also important to diversify – take your profits out of commodity and currency exchanges and put them aside in something more stable, to minimize your risks. Also, focus on multiple currencies, and look for currency exchange index funds, which tend to minimize the overall risks of this investment strategy.

Play Nostradamus On Forex Swings With Oil Trends

Forext Trading For BeginnersNow why should you worry about the price of oil if you’re not buying and selling oil?

If you’re neck deep into forex, there’s one good reason. Many of the most important currency trading pairs rise and fall on the price of a barrel of oil. The price of oil has been a leading indicator of the world economy for decades, and experts predict that that won’t be changing any time soon. The connection between the price of oil and the economy of many countries is based on a couple of simple facts:

1. Nations with healthy supplies of crude oil benefit economy-wise from higher oil prices.

2. States who depend on imports for their energy needs benefit from lower oil prices and lose when oil prices rise.

3. As the economy of a country is strong, its currency is also strong in the forex market.

4. As the economy in a country takes a downturn, its currency loses value in the currency exchange rate.

The ever shifting oil prices of the past year – 2005 – are a good example of what can happen when factors affect the price and supply of oil. Remember from basic economy courses that higher oil prices act to put the brakes on consumer spending. This follows as long as the major source of oil for industrialized countries is petroleum based. The price of all goods produced hinges on the price of a barrel of oil. As the oil prices rise, so does production and supply prices for most consumer goods. In addition, the expenses of individual consumers rise as they pay more to fuel their automobiles and heat their homes. The net result is a downward swing in the economy of the country until it hits a rallying point that starts it back on an upward trend.

Authorities who survey the oil market are split on which way oil prices are headed, and just how far. A little over a year ago, most pundits agreed that $40 a barrel was the upper limit for a barrel of crude oil. At the year’s beginning, oil had already broken that point, and was selling at $42.50 a barrel. The vagaries of the weather, world politics and actual capacity to meet demands have fueled one of the most volatile pricing years in recent memory. At one point, the price of crude broke $70 a barrel, an increase of 65% over the beginning of the year. And while prices dropped for a short period, at the end of the year, they were still 45% higher than at the beginning of the year. Since the turn of the year, prices have begun their climb again, and the majority of traders believe that we won’t see a reversal of that trend in the near future. The conservative predict a price of $80 per barrel. The more aggressive are calling it at $100.

What does this imply for the currency trading market?

From economics 101, we know that in the currency market, exchange rates are predicated on the health of a country’s economy. If the economy is robust and growing, the exchange rates for their currency reflect that in higher value. If the economy is faltering, the exchange rate for their currency against most other currencies also stumbles. Knowing that, the following makes sense:

1. The currency of nations that produce and export oil will rise in value.

2. The currency of nations that import most of their oil and depend on it for their exports will drop in relative value.

3. The most profitable trades will involve a country that exports oil vs. a country that depends on oil.

Based on those three points, the experts are keeping their eye on the CADJPY pairing for the most profitable trades, and here’s why.

Canada had been leaping the list of the world’s oil producers for years, and is currently the ninth largest exporter of oil worldwide. (gasp here) Since the millenium’s turn, Canada has been the largest supplier of oil to the U.S., and has been getting considerable attention from the Chinese market. It’s predicted that by 2010, China’s import needs for oil will double, and match that of the U.S. by 2030. Currently, Canada is positioned to be the largest exporter of oil to China. This puts Canada’s dollar in an excellent position from a trading perspective.

Japan, on the flip side, imports 99% of its oil. Their dependence on oil imports makes their economy especially sensitive to oil price fluctuations. If oil prices continue to rise, the price of Japanese exports will be forced to rise as well, weakening their position in the world market. Over the past year, there has been a close correlation with rises in oil prices and drops in the value of the yen.

If economy and history are to be regarded, the oil prices can’t continue to rise indefinitely. Eventually, consumers will bite the bullet and start cutting their demand for oil and gas. When that happens, the price of oil will either stabilize, or start heading back down toward the $40 a gallon that experts predicted it would never hit.