There is not an iota of doubt about the fact that forex trading is a highly specialized profession, which requires a very high level of judgment and skill.
The newcomers on the currency trading scene often find themselves bewildered at the thought of what they see around themselves.
This article will help you know some sure shot tell tale signs about when opportunity arises.
First, it is important to understand that currencies are traded in pairs.
When you buy a stock you sell dollars and buy the stock.
But what do you buy dollars with? You buy dollars with other currencies.
So rates are quoted relative to other currencies.
* Monetization: It is almost a cardinal principle of currency trading to keep a watchful eye on the amount of debt the government is monetizing.
It is pretty simple.
The government spends more than it earns in taxes, so where will they get the balance from? They will just print it.
But where does this new money get value from? From a decrease in the value of the old money.
So if US government prints money to pay off debts, the dollar becomes worth less.
So the next time you read in the newspaper about debt monetization, quickly find an economy which is less in debt and trade.
This is one situation when the currency will always fall.
* Central Bank Interference: Central banks are very concerned about the values of their currency.
This is because these values decide the relative worth of goods in both countries and therefore decide the flow of export and import.
If you see a central bank aggressively buying and/or selling its own currency, they are most likely trying to reach a target.
The idea is to get a free ride.
They are powerful and will most likely take the market to their desired level.
So guess their target and make some money out of it.
For veteran traders, this is almost a free lunch.
* Inflation: Inflation has an indirect relationship with FX.
The higher the inflation the weaker the currency.
So, once you compare the two inflation rates you can place your bets accordingly.
* Interest rates: FX has a direct relationship with interest rates.
This means that if interest rates go higher, the currency becomes stronger.
The logic behind this is very simple.
If the interest rates go higher the supply becomes restricted and with the same demand prices go upwards.
The media is abuzz with speculation of possible interest rate changes.
You can take a guess and enter into a derivatives position for the future.
Spot trading is not possible here because the market absorbs this news very fast as it is highly awaited and is factored into the price in almost no time.
In your journey of learning the art of forex trading, you will come across countless such tell-tale signs.
Almost everything that happens in the world has some impact on forex.
There is therefore an endless opportunity to make money that awaits you if you are willing to dedicate a little time and energy towards understanding them.
It is much simpler than people make it out to be.