The What Why and How of Foreign Exchange Rates

Sep 24 • Currency Exchange • 1629 Views • Comments Off on The What Why and How of Foreign Exchange Rates

Foreign exchange rates a.k.a. exchange rate or exchange is defined as the difference in value of one currency as opposed to another; more importantly, the resulting profit or losses that can be achieved by swapping one currency with another. This article will discuss Forex as an income-generating endeavor.

Currency Pairs

Pairing one currency with another is one way to determine the relative value of one currency. The best method is to pair one currency with a largely traded currency or “safe haven” currencies like the US Dollar. The nearer you are in terms of exchange rate the better it is for the value of your currency. Another method of pairing is to pair it with currencies associated with specific and important currencies. Say for example, the Japanese Yen and Gold. Of course, value is not only the most important consideration when pairing.

Timing

Some currencies slow down or increase in value at specific periods in a calendar year. Knowing the factors as well as the dates that cause an upwards or downwards trend is very important in generating sure profits. For example, a country that relies heavily on its manpower or in the income generated by overseas contract workers will definitely increase in value during the holidays and a few days or weeks before the opening of the school year. This is because income saved up is remitted to the home country to pay for holiday expenses and tuition fees.

Volume of Trading

The difference in value from one currency or the other can be as big as three digits or as low as decimals. However, the wisdom of trading in volume is always key in generating profits. Unless you are a big time trader, you cannot really invest huge sums of money in an exchange. Therefore, what you do is generate profits in short bursts in order to compound those earnings and prepare for the next trade day. Of course, big time or small time you always need to consider your stop loss strategy or threshold in order to minimize losses to an acceptable level.

 

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Practice

It is a given that every trader whether full time or part time must know the literature. This is easy to get (i.e. regular schooling, online courses, e-books, etc.). The problem is getting enough experience and in putting those theories into practice then developing not only your skill but confidence when it comes to trading.

A new relatively new method that is catching on real quick is known as Forex practice accounts. These accounts can either be online accounts or downloadable and updatable accounts that allow a person to play the role of a trader much like one plays a video game. What is cool about this is the fact that traders can actually use previous trading days as their practice trade day. This way they can verify if their particular trade is in line with the winners or losers of that particular trade day or if the readings they made on particular raw data is accurate in real time.

In Closing

Continuing education, training, and technology are key factors when trading in Forex. This is because the combination of all three will ensure that you not only trade accurately but trade faster than your competition.

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