What is Forex Currency Trading?

Everyone is talking about it. It's the newest get rich quick scheme on the block and you want a piece of the action. Who wouldn't? But before you go any further, it's good to spend some time to familiarize yourself with some of the basics. What is forex? Forex stands for foreign exchange, i.e. the currency of any country anywhere in the world, such as the US Dollar, the Chinese Yuan, the British Pound and so on. The concept of forex trading implies that one currency is exchanged for another; hence it is also called currency trading. There exists a huge international forex market where currencies are bought, sold and traded.

The forex market is one of largest financial markets in the world. And the amazing thing is that Sunday to Friday, it is a 24 hour market, it does not close daily like the stock market. Further, it is an international market, so it is bigger than almost any domestic stock market could ever be. Speculators on the forex market make money depending on the movements of the market and many have their own forex trading strategy. The most widely traded currencies are the US Dollar, the Euro, the British Pound, and the Japanese Yen. As you can see, these are the world's most powerful economies, implying that due to the amount of trade going on in these countries, businesses in these countries need plenty of foreign exchange.

As a speculator or forex trader, one would take a position on a country, depending on what one believes are the future prospects for that country and then either buy or sell its currency. For instance, if you believe that the US dollar will depreciate against the Euro, as a forex trader, you would sell US dollars right now at a higher price with the expectation of buying them from the market at a lower price when the US dollar depreciates. You will make the differential between the higher price and the lower price per dollar that you sold. Since you did not actually have stock of US dollars at the time you sold, this is called a short position.

The opposite of this is a long position, meaning that you believe the US dollar will appreciate and as a forex trader, you buy US dollars in hopes of selling them at a higher price when the market for them goes up. This is a simple long trade. There are plenty of forex currency trading systems to help you maximize your profitability.

An understanding of factors that go into successful forex currency trading is essential when you decide to become a forex trader, or maybe eventually a broker. The main factors that interact to form the basis for the trade are time, currency, interest rates and exchange rates. A solid understanding of these elements and their interplay is what makes a good forex trader.

The internet is a big driving force in the increased popularity of forex currency trading. With the introduction of the internet into every home, the average person now has gained access to the huge forex market. Earlier a playground for rich individual investors or huge institutions like financial companies and banks, the international forex market is now open to you and millions of others. And people are already tapping it to make their private fortunes.

Foreign Exchange Markets: A Practical Guide

This online guide aims at creating a coherent understanding of the foreign exchange market, by tying in real life market scenarios with the relevant theories of international finance and the classic schools of technical and quantitative analysis. Although there is a vast amount of literature on international finance, technical analysis and chartism, there is a scarcity of instructional materials incorporating actual market events such as interest rate decisions, interventions and geopolitical events.

Another area largely overlooked by currency guides is the integration of fundamental and technical analysis for making decisions. The distinctiveness between the two types of approaches dissuades many from factoring them together. But knowing how to combine them can be highly advantageous in unraveling the trend and timing of currency moves.

This material focuses on teaching how to think for yourself in understanding global currency markets, rather than depending on a pre-set trading system which recommends decisions without providing input on the whys of making right and wrong decisions. Rather than rehashing the classic theories driving currency analysis, this guide will offer investors, researchers and students an innovative approach, paramount in grasping and anticipating the moves in the major currency pairs.

US Dollar Still Range Bound, But Risk Aversion Creates Bullish Potential

Fundamental Outlook for US Dollar: Neutral

- US consumer confidence unexpectedly fell during June as signs of growth fail to materialize
- ISM manufacturing rose in June, but held below 50, signaling contraction for the 17th straight month
- US non-farm payrolls were disappointing, indicating that the pace of job losses accelerated in June

The US dollar ended the past week as the strongest of the majors, but it certainly wasn’t due to fundamental reasons. Instead, risk aversion reared its head once again following disappointing US news, triggering sharp declines in the US stock markets and FX carry trades, as well as increased demand for low-yielding currencies like the US dollar and Japanese yen. Using the DJIA as a barometer, there is potential for “risky” assets to fall again in the near term as the daily charts reflect a maturing head and shoulders pattern.

The data the recent moves came from the US non-farm payrolls report, which showed that the pace of job losses had accelerated, rather than slowed, during June at a rate of 467,000. Meanwhile, the unemployment rate rose to 9.5 percent from 9.4 percent and average hourly earnings growth stagnated during the month, bringing the annual rate down to a nearly 4-year low of 2.7 percent from 3.0 percent. All told, the continued deterioration in the labor markets that has led to more job losses and falling wages does not bode well for consumption growth, which composes roughly 70 percent of US GDP, through the rest of the year.

Looking ahead to Monday, data may show that conditions in US non-manufacturing sector - which accounts for approximately 70 percent of total economic activity in the country and includes retail, services, and finance - improved somewhat in June as the Institute for Supply Management index is estimated to rise to 46.0 from 44.0. However, consumer confidence has shown emerging pessimism, primarily on the economic outlook, as the Conference Board’s measure surprisingly fell to 49.3 in June from 54.8. Since risk trends have proven to be the greater driver of price action in the forex markets, a weaker than expected result could trigger flight-to-quality and thus, gains for the US dollar.

On Thursday, wholesale inventories are expected to fall negative for the ninth straight month and could register a 1 percent drop for the month of May. That said, this is a very lagging indicator and may simply continue to signal that businesses are cutting back on supplies in anticipation of weaker demand down the road. On Friday, the trade deficit may widen for the third straight month in May to $30 billion as exports continue to dive. Finally, the preliminary reading of the University of Michigan’s consumer confidence index for July is projected to fall very slightly to 70.6 from 70.8. However, there is downside potential in light of the sharp drop we saw in the Conference Board’s surprise drop in consumer confidence during June.

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