Foreign currency exchange trading is the fastest growing sector in the financial markets worldwide. Globalization has focused attention on the currency market and the volume of daily trading has exploded. Current estimates are that $4 trillion worth of currencies trade every day of the week. The rapid growth volume has been triggered by the use of the Internet.
Before 1994, the currency market was only accessible by large financial institutions and very wealthy people. Transaction size requirements were huge. With the growth in Internet use, currency brokers that cater to individuals began springing up everywhere. This has made it very easy for smaller investors to get involved and this helped the market expand to it’s current level.
The secrets about foreign currency exchange trading is that there are no secrets. The only way to make money over the long term in this market is to become an expert trader. Not only do you have to understand how the market operates but you have to understand the psychology of the market, as well as understand the things that cause price behavior.
One of the tools you need to use effectively is technical analysis. Technical analysis in currency trading involves plotting historic currency prices on charts so that you can get a picture of how prices have been moving over a set time span. In studing how prices behaved under the economic conditions of the time frame, you can predict more accurately what prices will do in the future under certain circumstances. Because almost all traders use technical analysis for making trading decisions, it is important to understand that if people believe that certain chart patterns will cause specific price behavior, it is very likely they are right.
The other area that must be effectively used in developing successful trading strategies is fundamental analysis. Fundamental analysis deals with things like economic reports, political conditions inside a country and sometimes even climate changes. When the money supply is increased dramatically in a country it will more than likely cause the currency to drop in price against other currencies. This is just an example. There are many factors that can have a fundamental affect on a currency’s price. Keeping up on all these factors is a part of every trade decision.
As mentioned earlier, psychology is a big factor in any trading market, including foreign currency exchange trading. This is the area of study that is the most interesting. If you can get a handle on this market detail you are certain to have a successful trading career.
The real key to becoming a success in currency trading is to combine all three areas; technical, fundamental and psychological analysis. This is obviously no easy task. It just takes a lot of effort.
As you can see, foreign currency exchange trading has no secrets for success. There is one thing that is for sure though, it takes a massive amount of research, study and practice to make money on an ongoing basis.