To help profit from the fascinating world of international Forex trade, you must have a firm knowledge on the key factors that affect a country’s currency value. When making trades, we believe it helps to analyze five key factors. In order of importance, they are:

Interest Rates
Economic Growth
Geo-Politics
Trade and Capital Flows
Merger and Acquisition Activity

If you know how each of these factors affect your currency trades, you have the part of the proper foundation to make serious professional returns.

Anthony DiChi at TradeCurrencyNow,
America’s Forex News and currency information source.

In some currency trading circles the rule for shorter term traders is never hold a position over a weekend. We have had many examples of this rule needed to be used over the several months.
Example; The EUR/USD gaped up 150 PIPS due to positive weekend news about the Greek debt situation. What does this gap represent to currency traders? Well, let us take it from the top. If you were short the EUR/USD on Friday and had a 40 PIP stop loss the 150 PIP gap up over the weekend rolled over your stop loss. In other words, your broker had no way of unloading your EUR/USD stop loss order because the stop loss price was never available. Which means you are still short the EUR/USD and would need to absorb the 150 PIPS that went against you over the weekend.

Anthony DiChi at TradeCurrencyNow,
America’s Forex News and currency information source.

The overall forex market generally trends more than the overall stock market. Why? The equity market, which is really a market of many individual stocks, is governed by the micro dynamics of particular companies. The forex market, on the other hand, is driven by macroeconomic trends that can sometimes take years to play out. These trends best manifest themselves through the major pairs and the commodity block currencies. Large professional traders usually trade less often for longer periods of time and use a larger percent of their currency trading portfolio than day traders. Many successful short term traders have some long term trades on.
The DiCHI Forex Index takes a look at these trends by examining, testing and following theories..
DiCHI Forex Index Di=Directional C=Currency H=Height I=Indicator Index.

Anthony DiChi at TradeCurrencyNow,
America’s Forex News and currency information source.

Currency Performance
The five most heavily traded currencies in the world are typically the U.S. dollar, British pound, euro, Japanese yen, and Swiss franc. Two statistical evaluations are presented below to track performance of these five currencies and five other major currencies. The time span for both calculations is January 19, 2010 through May 26, 2010.

Currency Value Change Versus

Swiss Franc
U.S. Dollar

Euro (EUR)
-4%
-16%

British Pound (GBP)
-2%
-13%

Swiss Franc (CHF)
–
-12%

Australian Dollar (AUD)
1%
-10%

Russian Rouble (RUB)
6%
-5%

Indian Rupee (INR)
8%
-3%

Canadian Dollar (CAD)
8%
-3%

Chinese Yuan (CNY)
11%
0%

American Dollar (USD)
11%
–

Japanese Yen (JPY)
11%
0%

The five currencies hit hardest this year are the euro, pound, Swiss franc, Australian dollar and ruble. The data shows that the strongest currencies during this period were the U.S. dollar, yuan and yen. Outside of the European Union, the United States, China and Japan also have the three largest economies as measured by GDP.

The euro has been battered by the financial crisis in Greece and the uncertainty surrounding the other countries tagged as “PIIGS.” This group, comprised of Portugal, Italy, Ireland, Greece and Spain, are all facing economic and debt problems that have driven investors away from the euro. The weak euro may actually help Greece because its exports will appear more attractive to countries outside the European Union.

The Bottom Line
While the U.S. certainly has its own debt problems, its currency and government-issued securities are considered relatively safe havens. Along with China and Japan, the American economy is still viewed as one of the strongest places to invest capital. How the U.S. deals with its growing debt will undoubtedly play a large role in the future value of its currency.

Anthony DiChi at TradeCurrencyNow,
America’s Forex News and currency information source.

As any long term professional Forex currency trader will tell you, correlations are one of the most important factors when trying to confirm currency trends.

Today we will take a look at the closely related tie between the Australian dollar and gold. Due mostly to the fact that Australia remains a major producer and exporter of the yellow metal, the correlation is an opportunity that not only exists, but is one that traders on every level can capitalize on. Let’s take a look at why this relationship exists, and how you can use it to produce solid gold returns.

The U.S. dollar/crude oil relationship exists for one simple reason: the commodity is priced in dollars. However, the same cannot be said about the Aussie correlation. The gold/Australian dollar relationship stems from production. As of 2008, Australia was ranked as the fourth-largest gold producer in the world, coming in behind China, South Africa and the United States. Even though it may not be the largest producer, the “Land Down Under” produces an estimated 225 metric tons of gold per year, according to the consultancy firm GFMS. As a result, it is only natural that the underlying currency of a major commodity producer follows a similar pattern to that commodity. With the ebb and flow of production, the exchange rate will follow supply and demand as money exchanges hands between miner and manufacturer.

Anthony DiChi at TradeCurrencyNow,
America’s Forex News and currency information source.

Forex currency day traders may want to take a look at what currency pairs move the most pips per day on a consistent basis. The more pips in your favor the larger the return.

Establishing a Base Line is one to determine reward.
To understand what we are dealing with, and which pairs are more suited to day trading, a base line is needed. For this the spread is converted to a percentage of the daily range. This allows us to compare spreads versus what the maximum pip potential is for a day trade in that particular pair. While the numbers below reflect the values in existence at a particular period of time, the test can be applied at any time to see which currency pair is offering the best value in terms of its spread to daily pip potential. The test can also be used to cover longer or shorter periods of time.

EUR/USD
Daily Average Range (12):105
Spread: 3
Spread as a percentage of maximum pip potential: 3/102= 2.94%

USD/JPY
Daily Average Range (12):80
Spread: 3
Spread as a percentage of maximum pip potential: 3/77= 3.90%

GBP/USD
Daily Average Range (12):128
Spread: 4
Spread as a percentage of maximum pip potential: 4/124= 3.23%

EUR/JPY
Daily Average Range (12):121
Spread: 4
Spread as a percentage of maximum pip potential: 4/117= 3.42%

USD/CAD
Daily Average Range (12):66
Spread: 4
Spread as a percentage of maximum pip potential: 4/62= 6.45%

USD/CHF
Daily Average Range (12):98
Spread: 4
Spread as a percentage of maximum pip potential: 4/94= 4.26%

GBP/JPY
Daily Average Range (12):151
Spread: 6
Spread as a percentage of maximum pip potential: 6/145= 4.14%

Anthony DiChi at TradeCurrencyNow,
America’s Forex News and currency information source.

In forex, the commodity pairs consist of the heavily-traded currency pairs and contain the Canadian, Australian and New Zealand dollars as part of the pairing. The three commodity pairs are: USD/CAD, AUD/USD, NZD/USD. These pairs are highly correlated to commodity fluctuations in the world markets and are the most heavily traded commodity pairs in forex.

Forex traders often trade these commodity pairs to gain exposure to commodity (especially oil) volatility. Although there are many countries with large natural resource and commodity reserves, such as Russia, Saudi Arabia and Venezuela, the commodities and/or currencies of these nations are usually highly regulated by their domestic governments or are thinly traded. The Canadian, Australian and New Zealand dollars are traded at high volumes and are therefore very liquid in the forex market.

Anthony DiChi at TradeCurrencyNow,
America’s Forex News and currency information source.

A currency futures contract is a legally binding contract that obligates the two parties involved to trade a particular amount of a currency pair at a predetermined price (the stated exchange rate) at some point in the future. Assuming that the seller does not prematurely close out the position, he or she can either own the currency at the time the future is written, or may “gamble” that the currency will be cheaper in the spot market some time before the settlement date and of course the buyer hopes the contract will increase in value. All of this depends on the price of the currency exchange rate going into the future relative to the start date of the contract.

In general, any spot market involves the actual exchange of the underlying asset; this is most common in commodities markets. For example, whenever someone goes to a bank to exchange currencies or trades the Forex Market, that person is participating in the Forex spot market.

Anthony DiChi at TradeCurrencyNow,
America’s Forex News and currency information source.

The art of Forex currency trading is in identifying the long term momentum trend early enough to enter the market with an edge in your favor and also in learning when to exit an exhausted trend that is about to reverse. That’s, in a few words, all you need to make money with Forex.

Why Momentum?
First, we need to look at why momentum is so important to trading. A good way to understand the significance of momentum is to step outside of the financial markets altogether and look at an asset class that has experienced rising prices for a very long time – housing. House prices are measured in two ways: month-over-month increases and year-over-year increases. If house prices in New York were higher in November than in October, then we could safely conclude that demand for housing remained firm and further increases were likely. However, if prices in November suddenly declined from prices paid in October, especially after relentlessly rising for most of the year, then that might provide the first clue to a possible change of trend. Sure, house prices would most likely still be higher in a year-over-year comparison, lulling the general public into believing that the real estate market was still buoyant. However, real estate professionals, who are well aware that weakness in housing manifests itself far earlier in month-over-month figures than in year-over-year data, would be far more reluctant to buy under those conditions.

In real estate, month-over-month figures provide a measure of rate of change, which is what the study of momentum is all about. Much like their counterparts in the real estate market, professionals in the financial markets will keep a closer eye on momentum than they do on price to ascertain the true direction of a move.

Anthony DiChi at TradeCurrencyNow,
America’s Forex News and currency information source.

Some Forex currency traders do not realize that interest ia eaither paid or earned when Forex market positions are held into the following trading day.

In theory all Forex currency trades must be settled in two business days. Traders who want to extend their positions without having to settle them must close their positions before 5pm Eastern Standard Time on the settlement day and re-open them the next trading the day. This pushes out the settlement by another two trading days. This strategy, called a rollover, is created through a swap agreement and it comes with a cost or gain to the trader, depending on prevailing interest rates.

The forex market works with currency pairs and is quoted in terms of the quoted currency compared to a base currency. The investor borrows money to purchase another currency, and interest is paid on the borrowed currency and earned on the purchased currency, the net effect of which is rollover interest.

In order to calculate the rollover interest, we need the short-term interest rates on both currencies, the current exchange rate of the currency pair and the quantity of the currency pair purchased. For example, assume that an investor owns 10,000 CAD/USD. The current exchange rate is 0.9155, the short-term interest rate on the Canadian dollar (the base currency) is 4.25% and the short-term interest rate on the U.S. dollar (the quoted currency) is 3.5%. In this case, the rollover interest is $22.44 [{10,000 x (4.25% – 3.5%)}/(365 x 0.9155)].

The number of units purchased is used because this is the number of units owned. The short-term interest rates are used because these are the interest rates on the currencies used within the currency pair. The investor in our example owns Canadian dollars, so he or she earns 4.25%, but must pay the borrowed U.S. dollar rate of 3.5%. The product of the difference in the numerator of the equation is divided by the product of the exchange rate and 365 because this puts our numerator into a daily figure. If, on the other hand, the short-term interest rate on the base currency is below the short-term interest rate on the borrowed currency, the rollover interest rate would be a negative number, causing a reduction in the value of the investor’s account. Rollover interest can be avoided by taking a closed position on a currency pair.

I hope the above currency trading article was of help to you.

Anthony DiChi at TradeCurrencyNow,
America’s Forex News and currency information source.