Current monetary policy allows for open and free exchange of currencies at market rates for most US and European trading partners. In essence, by looking at the exchange rates, and by prognosticating on international and foreign news, foreign exchange traders are making gambles that currency valuations will change in the direction they’re anticipating in the future.
Where the gamble comes in is predicting the time frame. Billions of dollars are run through currency exchanges every day, trying to make money on changes in the market that come with 2 seconds of notice for a fraction of a percentage point – and if you’re the sort of person who can handle that kind of job, you can make a LOT of money at it with properly honed instincts.
A smaller scale foreign exchange currency trading strategy is to do positional buys. Five and six cent shifts in the dollar to Euro exchange rate can happen weekly; the trick is knowing how to play them and to watch long term trends in addition to the short term bustle. One of the significant advantages of buying foreign exchange investments is that you’re always guaranteed to have something left; it minimizes your risks of a catastrophic loss.
The first, if performing a buy-and-hold strategy is to make sure that whatever currency you’re buying is held in a mutual fund in its native currency exchange – this smoothes out any downturns in the exchange rate and can become an added bonus when you compound the interest with the difference in the exchange rate when you’re done. This does require a substantial initial investment – usually $5,000 to $10,000 or more.
The second is the stop-loss order; in essence, this says “Stop the trade if the price changes outside of the following band”. Given the automatic arbitrage systems, this is useful to minimize risks.
You’ll need to be well versed in the rules for individual exchanges, when they close and open (currency exchanges are mostly based out of London, and Singapore’s exchange is important for the Asian market). Changes in oil prices, trade policies, union rules, even fashion trends, can foretell trends on how currency exchange rates will move.
Position trading (as described above) is better for single investors working the markets for themselves.
An important consideration on all foreign currency exchanges is to remember to buy low and sell high. Focus on multiple currencies, and look for currency exchange index funds, which tend to minimize the overall risks of this investment strategy.
A smaller scale foreign exchange currency trading strategy is to do positional buys. If you’re looking at making this a career, day trading is the way to go; it’s very easy to make (and, alas, lose) fortunes doing rapid trading on the currency exchanges. You’ll need to be well versed in the rules for individual exchanges, when they open and close (currency exchanges are mostly based out of London, and Singapore’s exchange is important for the Asian market). Changes in oil prices, trade policies, union rules, even fashion trends, can foretell trends on how currency exchange rates will move.
Focus on multiple currencies, and look for currency exchange index funds, which tend to minimize the overall risks of this investment strategy.
