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How to make money trading Currencies on Forex Market

How to Profit From Trading on the Forex Currency Market 

Profit Strategies for Forex Currency Trading

Among the most noteworthy events in the Forex currency market history is the formation of the gold standard monetary system in 1875. Each country attached certain amount of its currency to an ounce of gold.  The changing gold price between two currencies was the foremost in history as the method of standardizing currency exchange.

With the World War I there was a breakdown of the gold standard as the key European powers did not have adequate gold to exchange for the amount of currency being printed by the governments during the period for completing big military projects. Countries used gold standard between the wars, but it was dropped by most countries when World War II started. On the other hand gold never lost its place as the crucial form of valuing money.

Bretton Woods System was executed in 1944 which resulted in the formation of fixed exchange rates and it led to replacing gold standard with the U.S. dollar as the chief reserve currency. This also suggested that the only currency to be backed by gold will be the U.S. dollar. U.S. declared in 1971 that it would not exchange gold for U.S. dollars anymore which were kept in foreign reserves which marked the end of the Bretton Woods System.

The breaking down of the Bretton Woods System ultimately in 1976 resulted in the worldwide acceptance of floating rates for foreign exchange. This can be said to be the “birth” of the present foreign currency exchange. It started trading electronically only from the mid 1990s.

How Business can use Forex Market

Forex trading entails a transaction in which one party or person buys certain amount of a currency by paying the amount in different currency. The Forex market is an international decentralized financial market for currency exchange. There are a number of financial hubs around the world for trading a wide range of different currencies. They work around the clock except for weekends. The foreign exchange market plays a key role in determining the value of the country’s currency in comparison to another.

The key reason the existence of Forex market is to assist investment and international trade by allowing businesses to convert currencies. To give an example, a business from the U.S. can buy Japanese goods and pay in their currency, Yen, even with the business operating in US dollars and being based in America. The Forex market is also a medium for speculation which adds liquidity to the market and makes rates of exchange less impulsive. Forex market facilitates “carry-trade” where investors can purchase high rated currencies against low rated ones and profit from the interest rate.

Advantages of Trading Currencies in the Forex Market

Some of the many benefits of trading the Forex market include:

  • You can trade from anywhere with just a computer and an internet connection.
  • Huge trading volume leads to intense liquidity which makes it simpler to enter and exit at the price you want.
  • It offers flexible trading hours with 24 hours of continuous operation 5 and half days in a week.
  • Greater control to improve profit margins comparative to the size of the account as compared to other markets.
  • Lesser variables to think about as compared to commodity trading or stock.
  • There is no intrinsic market prejudice such as bullish bias stocks, which offers better chance to earn from the instability in falling or rising market.
  • Easy to access and start-up costs are low.

Forex markets are considered to be the market nearest to being “perfect competition” market with the advantages listed above and some other reasons. As per the Bank for International Settlements, the daily turnover in international foreign exchange markets on an average was estimated to be $3.98 trillion in 2010 April  which was about 20% higher than the $3.21 trillion average  recorded in 2007 April.

Who Trades Forex?

  • Big banks, central banks and some financial institutions.
  • Government
  • Brokers/ currency speculators / retail traders
  • Institutional investors
  • Corporations working internationally
  • Tourists/ Travellers

Forex Currencies Most Highly Traded

Mentioned below are the popularly traded currencies by % of daily share in April 2010:

  • U S dollar = 41.9%
  • Japanese yen = 12.0%
  • Euro = 29.1%
  • New Zealand = 1.6%
  • Australian dollar = 7.6%
  • Pound Sterling = 12.9%
  • Swiss franc = 6.4%
  • Hong Kong dollar = 2.4%
  • Canadian dollar = 5.3%
  • Swedish Krona =2.2%

How are Forex Rates Determined?

Economic aspects: They typically include governments, banks or other agency’s economic policies and the monetary situation as assessed by economic reports and other fiscal indicators.

Political Situation: Events and political conditions in the national, international or and regional space may have a key effect on the Forex currency markets.

Market Psychology: The way participants in the market think has an influence on the foreign exchange market in many ways. Eventually all the monetary variables are articulated through trader psychology or the human brain.

Trading Algorithms: Algorithmic trading has become a key player on the rates of Forex with the growing popularity of electronic trading based on algorithms like robot trading or computers.

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