Currency trading is alien to most people.
For most people, the mention of the financial market trading, brings to mind – stocks (or company shares) and commodities (gold, silver, copper, aluminum, rice, oil etc.).
But do you know financial market trading can also means Currency trading? Wherein, an individual makes money off currency movements.
With the advent of Internet-based trading, currencies are elevated to the list of trading assets; which are not under the sole domain of hedge funds, MNCs and banks. The domain of forex trading and currency trading is now available/open to an individual retail investor as well.
What currency trading requires:
In currency trading, investors make money by betting on the direction of the currency’s value. But, unlike other assets, the currency trading is always done in pairs (for the simple reason that the value of currency is measured relative to other currency(s). Hence if a person has to make money by predicting the direction of Indian currency, Rupee, then he/she will have to do so relative to some other currency, like the US Dollar or Euro. Unlike any other trading in financial assets, person gains by predicting the right course of direction and taking actions in accordance. For instance, those who predicted the current depreciation of Indian Rupee compared to US; may be profiting right now; by having more of dollars.
But all is not as simple; as it sounds. Alike any other speculative trading, successful currency trading also requires a thorough understanding of the trading fundamentals — Without exceptions.
Only through, sound understanding of the currency trading fundamentals, you can predict the course of a currency in future.
At no point, a person should enter any speculative trading, currency trading included, on blind guesswork. This kind of approach can work for once; but is bound to fail most of the times.
To predict an asset’s future price direction with a degree of certainty, the individual needs thorough understanding of the trading fundamentals; in addition to ever updating information about factors which fuel the movement.
For example, for an individual into commodity trading – one of the most crucial factors to benefit from the price fluctuations of a commodity – is to understand the dynamics of demand and supply. This dynamics of demand and supply is controlled by crop yield, exports and imports, festivities, inflation etc.
In the same way, those into stocks, should factor in a company’s assets and liabilities while considering a stock.
Likewise, before getting into the forex market, one needs to know the factors that can affect the value of a currency compared with the others.
But in the case of Forex trading or trading in currencies, these factors are largely macro-economic (making their impacts at country level) and include interest rates, inflation rates, economic fundamentals of the countries in question, and policies of central banks. In addition, currency values are highly correlated to other financial markets, such as stock markets, bond markets, and oil and gold prices.
A need for a Guide to begin with:
Just like any other money pursuit, currency trading can be perceived as an uphill task OR a child’s play; depends on how the concept is being introduced or explained to you. But, a brilliant explanation doesn’t mean, currency trading or forex trading is a child’s play. Since currency trading involves real money; currency trading is for those who have mastered the minutest of nuances involved. Not for airy fairy fool – who makes all his/her decisions on guesswork made out of the air.
But if you are keen to enter into currency trading, then being new is not a thing to ashamed of. Just pick up a good in depth guide to currency trading and read it once, twice or more to absorb all the fundamentals of currency trading.
One Great help at hand, is Currency Trading for Dummies by Brian Dolan.
The book covers everything, from the basics of the forex market to the macro-economic fundamentals at play. Once the foundation is laid, the book gets into trading strategies and technical analysis. According to the author, the latter is a good skill to hone because the ability to identify signals, be it resistance, support or anything in between, goes a long way in developing a sound trading plan. He then tells the readers how to develop and execute trading plans. The concluding sections offer tips for successful trading, flags trading mistakes and discusses risk management plans.
by: Brian Dolan
publisher: For Dummies, published: 2011-07-05
sales rank: 35062
price: $12.49 (new), $12.49 (used)
Your plain-English guide to currency trading
Forex markets can be one of the fastest and most volatile financial markets to trade. Money can be lost or made in a matter of seconds, and forex markets are always moving. So how do you keep up? This hands-on, friendly guide shows you how the forex market really works, what moves it, and how you can actively trade in it — without losing your head!
- All the world’s a stage — get an easy-to-follow introduction to the global forex market and understand its size, scope, and players
- Show me the money — take a look at the major fundamental and economic drivers that influence currency values and get the know-how to interpret data and events like a pro
- Prepare for battle — discover different types of trading styles and make a concrete strategy and game plan before you act on anything
- Pull the trigger — establish a position in the market, manage the trade while it’s open, and close out on the most advantageous terms
Open the book and find:
- Currency trading conventions and tools
- Key characteristics of successful traders
- Trading pitfalls to avoid and risk management rules to live by
- How major currencies typically trade
- Why it’s important to be organized and prepared
- The 411 on buying and selling simultaneously
- Tips for understanding rollovers and interest rates
- Grasp currency quotes
- Capitalize on the foreign exchange market
- Manage risk and reward
- Use the forces that drive currency movements
- Identify key traits of individual currency pairs