Trading Profitably on the Foreign Exchange Market

You may be asking yourself "how does one begin to trade profitably as a currency trader?".

First, it is important to closely monitor foreign equity markets to attempt to predict or model how their respective currencies will perform against other currencies, ideally, currencies that are not very closely related, nor proportional, to the former currency.

For example, Mexico's economy is closely linked the the U.S. economy, in some respects, but in other respects, they are not very directly proportional since Mexico's economy is currently improving as a consequence of increased consumer financing, an increased number of remittances from family members in the U.S., and other factors.

Back to our original point, when you begin to notice that an equity market is about to become bullish, it may be a signal that the currency of the country in which the equity market you're looking at is based may be about to rise. Conversely, if the market turns bearish, that may be a bad sign for the country's respective currency. Nevertheless, you may still be able to capitalize on bear markets and economies by short-selling a currency pair. That is one distinguishing feature in currency trading: you may bet against a country's economy (including your own!) by betting against that country's respective currency.

Other currency fundamentals to consider include a country's interest rates, deficit, exports and imports, as well as, and probably very importantly, oil prices. Look at how the recent OPEC meeting affected oil prices and how that in turn had a considerable effect on the DJIA.

Joshua M. Kunken is Currency Analyst for ForeignMarketWatch.com. His articles have been featured at ForexTrack.com.

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