Forex Trade Signals

Forex Trade Signals And What Forex Trading Is All About

First , forex trade signals, like other speculation forms , has a goal that is more important than anything else ; make some money ! If this is the premise we start out with, that our goals is making money, then in a massive global market market, how do we do this ?

First you must decide whether you are a technical trader or a fundamental trader or both . There will be more articles coming on this topic later , but for now let’s assume that you like to follow world affairs and current events and are therefore attracted to the fundamental side of the game . Then you must ask yourself , what are the most important factors fundamentally driving currency movement ?

If focusing on the fundamentals , forex trading decisions are going to be driven by one thing above all others ; the interest rate differentials between various countries. You may wonder what an interest rate differential is? Good question ! Suppose there is a short term interest rate of 4% on the Australian Dollar . This means that if you live in Australia and you’re in debt this is the very base rate determining what you’re paying on mortgages, credit, and other debt. This also means that if you are a creditor you can use this 4% short term interest rate as your base rate that will determine how much interest income you make on your investments ; such as CDs from your local bank . Then suppose that the short term interest rate of the US Dollar, set by the Federal Reserve , at 1% . So how in the world does what I just said affect currency movements ?

If 4% is the short term rate of the Australian Dollar and 1% is the short term rate of the US Dollar it’s all as simple as this : investors will seek a higher yield on their investments and because they can get more interest in Australia they move their funds “down-under” or as the Aussies say, “down-unda mate” . This shift in the investments going to Australia from the US leads to a weakening of the US Dollar since demand is smaller than supply and the Australian Dollar will strengthen since the demand is greater than its supply. The basics of economic fundamentals are working; when there is higher demand the value rises.

When you think about your own forex trade signals and your next position, just ask yourself , ” what country has the most liklihood of having higher rates moving forward and which country moving forward will probably have lower rates ?” Purchase currency that is the high interest rate favorite and sell currency favored for interest rates that are weaker and increase profits as investors flows leave the weaker currency and flock toward the stronger one . This is the essence of forex trade signals.