Currency Spread Trading

In finance terms, the exchange rates (also known as the foreign-exchange rate, forex rate or FX rate) between two currencies specifies how much one currency is worth in terms of the other. This is a fascinating area with forex trading being a very dynamic marketplace representing some of the most liquid markets in the world. The market itself is made up of a link of international banks and other financial institutions all around the world and spread across different time zones meaning that spreads are kept tight virtually round-the-clock.

Forex is the largest and most liquid financial market in the world but with a growing amount of providers, how can you be sure you are getting the best deal?

With a daily average of well over $4 trillion, the currency market is the most heavily traded financial market in the world. It is also highly accessible market available to anyone on a 24-hour basis, five days a week which makes it very attractive trade. The foreign exchange (forex) market is always moving and offers deep liquidity and low costs – and importantly it offers spread traders high leverage meaning that traders only have to deposit a small portion of the total value that they wish to trade. Currency spread trading is also a popular work-from-home business for some earning successful forex speculators many times more than they could expect by simply turning up to the office each day. Although the rewards are potentially very large, it is not as simple as it looks and many profitable home traders have spent several years perfecting their trading technique and disciplining themselves to be able to make a living trading. It is important to appreciate here that forex trading allows for very high leverage but you need to make sure you know what you are doing or you could likewise lose big amounts as well. Currency spread trading involves using the concept of spread betting to make money from price fluctuations in currency pairs.

Foreign exchange (often referred to as Forex, or simply FX) is actually one of the more popular traded financial products, providing ample opportunities for savvy traders, even in turbulent market conditions. But to successfully trade foreign exchange (forex) requires the mastery of many skills and a suitable service provider. The aim of the forex spread trader is to make a profit from the movements in value of one currency against the other by speculating on which way forex prices are likely to move in the forseeable future. The idea is that a trader sees an opportunity, using a form of analysis of the market, and then places a ‘bet’ with a spread trading broker in the direction that they think the value of the currency pair will move in the future. Since currencies are always traded in pairs – one counter will always be going up or down against another – there are always opportunities for profit. As the currencies fluctuate against each other throughout the coming hours or days, the trader will see his account either increase in value, or turn negative and begin to lose value. When the trader decides to close their position this will either be in profit, at a loss or a break even depending on which direction and how many points the currency pair has moved.

The ability for some individuals to be particularly good at currency trading is not necessarily because a natural gift or talent for trading, but more the fact that they have discovered a technique or way of trading which agrees with their trading personality. Some investors use technical and fundamental tools to trade more effectively with some relying more on technical analysis and others preferring a more fundamental approach. Successful traders often seem to have a talent for recognsing chart patterns and a good grasp of risk management techniques and market psychology. Discovering a way of trading which suits the individual is a critical aspect of trading any FOREX spread trading. Applying a technique or strategy which suits many of the personal traits of a trader including patience, risk tolerance, ability to follow rules etc. are the basis of achieving success as a home-based currency spread trader. Quite often, many spread traders try multiple different ways of currency spread trading before they finally settle on a particular timeframe, indicator or mechanical trading system. The ability to achieve consistency in trading is also an attribute shared by most successful home-based currency spread traders. Ascertaining your weaknesses will therefore go a long way in developing the knowledge required to be a successful trader.

Successful currency spread trading can be seen to involve a number of factors which are likely to only to be found on a trading journey where failure is as consistent as success. Currency spread trading is not an easy job or hobby but for those who persist and ask the right questions of why their trading isn’t working during the early stages of trading it can be extremely rewarding. There are hundreds of books and thousands of websites claiming to benefit traders and improve trading skills. Many of the most worthwhile of these are those which don’t claim to make you rich overnight. Those individuals who are making a living at home currency spread trading are not reading a ‘Get Rich in 30 Minutes’ book but they are applying techniques and strategies which they have seen and learnt about before applying this countless times to their own trading. The ability to make profits can be seen as a combination of persistence and self-understanding in currency spread trading.

Choosing which currency pair which will suit your personality is also a matter of preference and an important decision in order to become profitable. The choice between which currency pair you want to begin currency spread trading with is important given the multiple pairs available to traders. The choice ranges from those pairs that have very low spreads, reflecting their liquidity and lower volatility, to those with wide spreads which tend to make wild swings throughout the day. For those who prefer a more sedate introduction to trading then the EUR/GBP or wither the EUR/USD or AUD/USD are good options. The spreads on these pairs are also some of the lowest in forex and they are generally fairly steady currencies to trade as they are all broadly correlated to the EUR/USD which is highly liquid and one of the most popular Risky vs. Safe Haven currency pairs to trade.

Your forex positions will move constantly reacting to the live market and are likely to be impacted by global, social and economic events so you need to keep abreast of world happenings. However, it is just too easy to be dragged into trading currencies based on rumours. Make sure to do your own research and don’t trade based on the advice of a tipster! Whatever you do make use of stops and limit orders to help you manage the downside while protecting profits so that you are able to get in and out of positions at particular prices without having to constantly monitor the screen.

Currency spread trading has a number of relationships and unwritten rules which are well worth understanding before assuming that currency spread trading is simply a past time for gambling. This is particularly so with volatile currency markets where prudent risk management and the use of stops is paramount. In such cases the use of technical analysis can help determine profit targets and risk paramaters. Successful currency spread trading focuses on the cyclical nature of patterns, seeing what has happened before and assessing the probability of this happening again. It is also based on the interlinked nature of the currencies themselves. The US dollar is, for example, considered as the primary safe-haven global currency which increases in value when investors feel nervous to invest in other currencies. The US dollar is generally opposed to both the Euro and the Australian dollar which are generally seen as riskier investments and therefore fall when the US dollar rises. Understanding these relationships are important to see the bigger picture when currency spread trading. Likewise the ups and downs in a positive solution to the Eurozone crisis in 2012 were mirrored in the value of the euro against other forex currencies, since the outcome will have a long term impact on the Eurozone economy.

Currency Trading Tips in Sequence

Some of the best tips are pretty much common knowledge, but some are quite alternative so if you aren’t familiar with some of the more exotic currency trading strategies then you should not be closed-off to such pieces of advice.

Tip One—Set a plan with your trading. Many people just follow the speculators and the most prevalent market trends at that moment and while this can work some of the time the best currency traders have confidence in their methodology and stick to their pre-established plan.

Tip Two—Research as much as you can. Forex and the foreign exchange markets are constantly changing and new strategies and techniques are always going to be emerging. With technology and the overall connectivity of things in today’s world economy it is vital that you stay up to date about how things are evolving and this is no different when it comes to the world of forex.

Tip Three—Experiment with different strategies. Once you have set a plan and done the research it is then important to experiment with what you have learned and while I know this can be a bit risky when you’re trading currency the reality is that some traders don’t find their groove until they’ve lost much of their bankroll. The more you can try different things the more you can gain a feel for what works and what doesn’t and this can be the kind of privileged information that many people are in search of but very few stumble upon.

Tip Four—Learn to stay discipline. Once you really begin to get your feet wet with forex and start trading at significant
price points you must stay discipline and check your emotions at the door. The best currency traders are the ones that treat forex as a business and not as an up and down blackjack game. I can almost guarantee you that if you want to become a major player in the forex game then you will have to go through a period where you will lose a lot of money and you will end upt questioning whether you should stay or go. The traders that can endure such failures are the ones that typically end up on top so don’t get discouraged if you’ve lost some money because it happens to the best of us.

Tip Five—Position yourself correctly. After you have set a plan and have tried different strategies then it is vital that you position yourself correctly in terms of capital invested and implemented strategies. You must learn how to hammer what is currently working and throw out what might not working at that particular time so that you can multiply your profits and reduce your losses. Forex really is a game of finding out what works and then consolidating your efforts so that you can profit as much as you can while things are going well. If something isn’t working then you shouldn’t hang on to it for too long, and after you’ve been trading for a certain amount of time you’ll gain an intuition for when to change things.

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