Every time someone makes a credit card buy in a foreign country, when a firm pays it’s outsource provider abroad or a item in US$ and gets it with a EUR-based credit, one or more currency exchange transactions occur. In a few words the Forex market is the virtual place where currencies are transacted.
In a globalized world, where fiscal merchandise trade for developed countries (not including services) is in the 1,000 Billion range, it means the Forex market forms one of the most liquid over the counter financial markets.
Do people make money in Currency Trading? This is one question that many of us have been asking ourselves recently. Here is one of the largest forex hauls in history. In 1992 the British Pound exchange rate versus other European currencies was fixed by the bank of England. In order to maintain that value, the Bank set their interest rate at a high level, similar to the one offered by Germany. However Germany’s high interest rates were appropriate for a robust economy in need for a cool down to prevent a spike in inflation. Britain was in the opposite situation, with its economy in the doldrums. A Hungarian immigrant identified this situation, decided that it was not going to last for long and sold short 10 billion pounds. He made 1.1 Billion US$. His name is George Soros –greatest in forex trading strategies.
Situations like the one described before are not a black swan effect of the past. The press is filled with incidents of currencies over and under-prices being brought back to fair value; in the more recent crisis in Europe forex players brought the value of the Euro down when it was overvalued (from 1.3654 on April 14 2010 to 1.1925 on June 8, 2010, - 12.7%) and back up again when it was oversold (from 1.1925 on June 8, 2010 to 1.3276 on August 6, 2010, + 11.3%). Central bank interference to get to a acceptable value haven’t stopped either, as the recent decisions of the central bank of Japan and the central bank of China illustrate.
Predicting a fall or an increase is not a matter of serendipity. Techniques and methods based on technical analysis enable you to assess short terms fluctuations of a currency, where as universal indices, such as the Big Mac Index, assist to spot currencies that are different from their underlying value and that will combine to that price in the long run.
Looking out for professional Currency Trading resources on the web? Forexbud.com presents effective forex trading strategies that would help you achieve profitable trading actions.
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