Currency Trading

While trade is international, currencies are national. As international transactions are settled in global currencies, usually they are brought/sold for one another and this constitutes 'currency trading.Currency trading is one of the most fascinating and potentially lucrative businesses. It does not involve rocket science but yields incredible profits. A few years ago FOREX (foreign exchange) was not known to many people but today it is one of the most attractive home business opportunities for any person mainly due to its availability via the internet.

Currency prices are affected by a variety of economic and political conditions, but probably the most important are interest rates, international trade, inflation, and political stability. Sometimes governments actually participate in the foreign exchange market to influence the value of their currencies. They do this either by flooding the market with their domestic currency in an attempt to lower the price or, conversely, buying in order to raise the price. This is known as central bank intervention. Any of these factors, as well as large market orders, can cause high volatility in currency prices. However, the size and volume of the FOREX market make it impossible for any one entity to drive the market for any length of time.

Major fundamental factors that affect currency movements

Trade Balance - This refers to imports and exports, and is probably the most important determinant of a currency's value. When imports are greater than exports, you have a trade deficit. When exports are greater than imports, you have a surplus. A shift in the trade balance between two countries tends to weaken the currency of the country with greater deficit

• Wealth - Wealth is a country's reserves, in the form of gold, cash, natural resources, and so on. Basically any factor that affects a country's ability to repay loans, finance imports, and affect investments impacts the market's perception of its currency and the currency's value.
• Internal budget deficit or surplus - A country running a current account deficit has, on balance, a weaker currency than one that runs a budget surplus. This is tricky, however, in that the direction of the surplus or deficit affects perceptions and currency valuations too.
• Interest Rates - Funds move around the world electronically in response to changes in short-term interest rates. If three-month interest rates in Germany are running 1% less than three-month rates in the United States, then all other things being equal, "hot money" flows out of Euro into the Dollar.
• Inflation - Inflation in each country, and inflationary expectations, affect currency values. What good is a 10% short-term return in some country if inflation is running 15%?
• Political factors - Taxes, stability, whatever affects the international trade of a country, or the perception of "soundness" of the currency affect its valuation.