Currency Trading Tips
Currency Trading Tips
For many traders, the whole point of trade and investment is to make money. But, for a specific kind of trader, it’s possible to make money through trading money itself. Money doesn’t just buy things or accumulate interest, it is an asset. And, as an asset, that means that there are ways to make it work for you beyond just spending it.
Currency trading on the Foreign Exchange or “Forex” market has been one way that people have used currency itself as a means to make more money. There have been a few ways that money has been traded in a market sense, from the traditional methods, where money is bought and sold, to the more recent trends with speculative trading. Both of them have their merits, although they have very different requirements for meaningful, substantial success.
If you’re interested in trading profitably in currency, there are a few basic tips you should consider going into this venture.
Assess Your Own Resources
There’s a big difference, for example, between traditional trading and investment, and binary options. Both of them are methods for making money, but the way you go about it is very different. In that sense, currency trading is the same.
The traditional method of currency trading is actually not that much different from stock or commodities trade. In this form of trading, you actually buy and own the currency, the same as you would buy shares in a company, or buy a set amount of gold. Once you own the currency, you wait until currency fluctuations change enough that the worth of your currency is now more than when you first bought it, and you release it back onto the market to make a profit.
Trading in this way means that you can only make as much profit as you are able to bear from the difference in currency fluctuations. In other words, if you bought Canadian dollars at $0.75 on the American dollar, and the market changes, such that that the Canadian dollar’s value rises to $0.80, you’re still only making $0.05 profit per Canadian dollar. In order to truly reap the benefits of such a transaction, you have to be able to “buy in bulk,” and own a substantial amount of Canadian dollars that you can release back to the market. If you have the wealth to manage this, you can make some very substantial profit, but only at a very large scale.
For people who cannot afford to invest hundreds of thousands, or even millions of dollars in trades, speculative trading is the alternative. Here, you don’t actually purchase the currencies, but instead, you invest money in predictions on how the currencies will perform in the market. Your profit is less dependent on the actual currency value, and more largely determined by whether you are correct in your prediction about that money’s financial performance. Of course, this also means that the smaller investments won’t yield the same profit as the larger ones but that’s to be expected.
Start With The Familiar
If you’re just getting your feet wet with currency trading, one good way to get the experience you need is to begin trading with your own currency. Whether this is traditional currency trading, or speculative trading, you’ll have a much stronger sense of the worth of currency values when you are intimately familiar with the currency itself.
Most people will be familiar with the currency of their country and its value in comparison to the American dollar, which is largely the standard for global currency markets. This means if you live in the United Kingdom, you should start by looking at trading with the Pound first. People in Japan should start with the Yen, and people in Brazil should trade with Reals.
Once you’ve gotten some solid grounding with a familiar currency, you can start to think about—and look at—other currency pairs of interest. However, this is not something that you should jump into either quickly or impulsively.
Do Your Research
Currency trading, like stock trading or commodities trading is all about changes in a market. That means that nothing happens without some kind of reason. When a currency rises or falls in price, there will always be some kind of cause behind it, and it is the people that take the time to understand this interplay of cause and effect that will make the most consistently successful trades.
When looking into your currency trades, or making the jump to another currency to add to your portfolio of trading assets, make sure you understand the market for that currency. An admiration of Japanese culture, for example, is a good thing, but just because you like Japanese culture and products, that does not translate into successfully trading Yen on the Forex market. The only thing that will facilitate consistently good trades with the Yen is taking the time to look at the Japanese economy, various influential Japanese businesses, and how the Japanese Yen itself interacts with—and fluctuates in response to—changes in the global market and global economy.
Follow Current Events
In keeping with doing research on markets, another important aspect of successful currency trading is staying informed of the relevant current events, especially in market and economy sectors. The key to both traditional currency trading and speculative trading in the Forex market is keeping track of the fluctuations in currency price. On any given day, a government decision, natural disaster or outbreak of war can radically change the financial performance of a currency.
The United Kingdom, for example, is currently experiencing the “growing pains” as the true consequences of their “Brexit” vote to leave the European Union are finally beginning to manifest. Anyone who does not closely follow these developments, but trades in the Pound is unlikely to be able to keep up with the fluctuations the currency is set to experience.
In the same way, the tensions between North Korea and other Asian countries, notably Japan, is going to have an effect on various currencies in the region, including the Yen. But staying abreast of these developments, knowledgeable currency traders can more reliably predict how the currency prices will react, and respond with appropriate trades.