subject: Forex Day Trading System - What Is Forex Trading All About Anyway [print this page] First , forex day trading system, like any form of speculation , has one main goal; make some money ! If this is the premise we start out with, that our goal is to make money , then how do we do it in this massive global market ?
First, figure out whether you're a fundamental or technical trader, or perhapse both . Later we'll have more articles on this topic , but for now let's assume that you like to follow world affairs and current events and the fundamental side of this game is the one you're more attracted to. You would then need to ask yourself , what are the single most important fundamental factors that drive currency movements ?
If focusing on the fundamentals , there is one thing above all else that will drive your forex trading decisions ; differentials in interest rates between countries . What is an interest rate differential ? Great question ! Let us suppose that the Australian Dollar has a short term interest rate of 4% . This means that if you live in Australia and you're in debt this will be the base rate that determines what you pay on mortgages, credit, and other debt. Also, if you happen to be a creditor you can use this 4% short term interest rate as your base rate that determines the income you get on investments ; such as CDs from your local bank . Now let's suppose the US Dollar has a short term interest rate , which the Federal Reserve sets , at 1% . How are currency movements affected by all this ?
If the Australian Dollar short term rate is at 4% and the US Dollar short term rate is at 1% it comes down to something really as simple as this : investors will seek a higher yield on their investments and since there is more interest in Australia funds are then moved by them to the land "Down Under" . The investment shift of capital leaving the United States and moving to Australia leads to a weakening of the US Dollar since demand is smaller than supply and the Australian Dollar will strengthen because supply is smaller than demand . Basic economic fundamentals at work here ; value rises when there is higher demand .
Next time you think about your forex day trading system and what position to put on next , ask yourself , "what country is likely to have higher rates moving forward and which country moving forward will probably have lower rates ?" Then, buy the currency that you favor for higher interest rates and sell currency favored for interest rates that are weaker and see profits increase as investors leave currency that is weaker and go towards the one that is stronger. This is the essence of forex day trading system.
