trading currencies
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Trading CurrenciesTRANSCRIPT
Trading currencies is a necessary part of
international business.
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Trading currencies is also a way for
speculators to earn a profit. Currency
markets (Forex Markets) exist in order
facilitate world trade.
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The relative value of one currency
versus another varies with the relative
strength of the two economies, economic
policy politics and central bank monetary
policy.
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As these factors change so do the
relative values of the US dollar versus
the British Pound, the Yen versus the
Swiss franc and so forth.
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Trading currency options is common in
the world of commerce as companies
seek to hedge currency risk.
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When a company places an order for
machine parts it may need to wait for six
months to a year for delivery. It will pay
the bill in the currency of the nation of
origin of the parts when the parts arrive.
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If the relative values of the two
currencies changes significantly in the
meantime it can mean a substantial loss
which is why those folks commonly use
options to hedge risk in trading
currencies
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. On the other hand speculators look for
volatile markets and typically trade over a much shorter term.
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Fundamentals and
Technical Analysis of Price Patterns
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Fundamentals such as employment
numbers, balance of trade, currency
reserves and central bank policy are
what set the relative values of foreign
currencies.
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However, traders seek to anticipate what
these fundamentals will be in order to set
up profitable trades.
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One can spend a lot of time researching
all of the fundamentals and still be
wrong. Or one can watch the market
closely and use what is called technical
analysis.
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Statistically based technical analysis is
not affected by greed or fear, the
common demons of trading psychology.
By developing and following Forex
technical strategies the trader can audit
his trading results and modify the
strategy as needed.
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The Forex trader does not need to
develop the mathematics underlying
Forex technical strategies.
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Rather the trader can modify parameters
in his trading software to allow for more
latitude from different variables used in
calculating equations and offering
trading suggestions.
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A successful Forex trading system will
be based upon technical indicators.
Trade station software will have
immense amounts of real market data.
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In order to test various Forex technical
strategies the trader need only try them
out in simulation trading in various real
historic environments to asset their
efficiency in delivering profitable trading
opportunities.
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Day Trading Currencies
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Day trading currencies is often more
profitable than taking a position and
waiting for fundamentals to change.
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A skilled analyst of market fundamentals
may be right on the money and
eventually make a tidy profit.
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However, a trader skilled at market
technical analysis can often profit from
every up and down of the market as it
makes its way to an eventual price level.
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Smart currency traders are aware of the
fundamentals and use them to guide
their trading. Then they keep abreast of
market sentiment via technical analysis
to profit from the daily ups and downs of
trading currencies.
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