The Lure of Currency Trading

What is currency trading? Currency trading is the largest market in the world. It’s estimated that over US$2-trillion is traded every single day. Compare this to other markets such as the New York Stock Exchange, and the daily transaction of US$50-billion pale in comparison. The forex market easily exceeds all other equity markets in the world combined. The practice of currency trading is commonly referred to as foreign exchange, forex, or FX, for short. All available currency has a value which is relative to other currencies in the world. Currency trading uses the purchase and sale of large quantities of currency to leverage the shifts in the relative value to profit.

There are two reasons the relative value of a currency fluctuates. The first is due to a real market. As outside investors or other visitors wish to purchase things from within a country, they are forced to convert their domestic currency into the currency of the country they are in. likewise, as money leave the country, people must then sell their currency for the foreign currency they will need while abroad. The second force for currency fluctuation is speculation. As investors feel a given currency will act strongly or weakly, they will then buy or sell depending. This speculation can have radical consequences on a national currency and therefore on a country’s entire economy. For example: During the East Asia Crisis in 97, nations in Asia began to face economic downturns, speculators used foreign currency trading to realize enormous profits and intensified the problem.

Foreign Currency Day Trading

The term “day trading” refers to the practice of buying and selling financial instruments within the same trading day. This is different than after-hours trading. Traders who participate in day trading are simply referred to as day traders. Some of the more commonly traded financial instruments are stocks, currencies, and a variety of futures contracts such as equity index futures, interest rate futures, and commodity futures. Day trading used to be done only by financial firms and professional investors and speculators. Many day traders are bank or investment firm employees working as specialists in equity investment and fund management. Just as we’ve seen with the forex market, day trading has become more popular now that the technology is readily available for everyone to participate. The popularity of the internet has boosted day trading through the roof. Online currency trading is an enormous game with a variety of players.

Though it’s all still called day trading, there are many sub-trading styles within day trading. A day trader is actively searching for potential trading setups. Depending on an investor’s particular trading strategy, the number of trades the trader can make a day varies from none to dozens. Some day traders focus on short-term trading within the particular trading day, in which trades can last seconds or a few minutes. Day traders may buy and sell many times in a trading day and may even receive trading fee discounts from the brokerage as a trading bonus. Some day trader’s focus on price momentum, others on patterns and others on various strategies they feel can be profitable. Winning day traders find that they must learn to be patient and be ready to ride on a strong move which could occur at any moment.

Forex Trading Methods for Currencies

Trading in foreign currency doesn’t have to be complicated at all. Once you’re privy to currency trading terminology, how particular systems work, and inept enough to employ your best currency trading money management strategies, you can begin working the forex market, and hopefully generate large profits for yourself. Online currency trading is a lucrative market in and of itself; with various automated systems that offer pip counters and watchers, live-time statistics, demo accounts for practice, etc, an aspiring day trader can fluently make the move to day trading forex currency for the big bucks.

There are six different methods and techniques which day traders use to play the market. The first is Trend Following. This is a strategy used in all trading time frames. It assumes that financial instruments which have been rising will continue to rise, and likewise with falling stocks. The trend follower buys an instrument which been rising, or short-sells a plummeting one, and hopes that the trend will continue. The next is the Contrarian. With this method, the trader uses a timing strategy that runs contrary to the “trend.” If the stock is rising, the contrarian assumes it will now fall.

Range Trading is the third method. This requires watching a stock that has been rising off a support price and falling off a resistance price. Such a stock is considered to be trading in a range which is also the opposite of trending. The range trader buys stock at a low price, and sells at a high. Next is Scalping. Scalping is a trading style where small price gaps created by the bid-ask spreads are exploited. Normally, it involves establishing and liquidating a position quickly, usually within seconds.

Rebate Trading is an equity trading style that uses ECN rebates as a primary source of revenue and profit, considering the payment structure of ECN paying per share. Traders maximize their returns by trading low priced, high volume stocks. The final method is News Playing. The strategy here is to buy a stock which announced good news, or short sell on bad news.

These six methods are favorites of day traders who deal in various financial instruments. In currency market trading, you can apply whichever best suits your needs, or create your own method to correctly attack the world of forex currency trading.

How to Become a Currency Trader

Article Summary
• - Trading Methods
• - Currency Traders
• - Day Trading
• - Trading Currencies

In this fast-paced, traffic jammed world of online hoopla, it’s easier to find misinformation than correct information. The forex currency trading market is not a huge secret. The market cannot be likened to a get-rich-quick scheme. Therefore, you don’t have to try so incredibly hard to avoid the pitfalls of scam artists who will try and sell you shoddy systems, keeping the real information hidden for their use. Though there are scam artists who will inevitably try and profit off of your eagerness. But with the forex market, there’s truly enough money for everyone, making the common crook not all that common. By running a quick search, a potential investor can find a host of information to guide them through creating a forex account, and inching closer to becoming a real trader.

Books like Currency Trading for Dummies are available for low prices everyday, and will help you to learn the basics of the forex market. The best forex currency trading methods will undoubtedly help any investor profit from this expansive market.