First , free forex training, like any speculation form, has a goal that is more important than anything else ; bring in money! So if we start with that premise , that our goal is to make money , how is this achieved in our massive global market?
First, figure out whether you are a technical trader or a fundamental trader or both . In the future we’ll have more articles regarding this topic, but for now let’s assume that you like to follow world affairs and current events and the fundamental side of this game is the one you’re more attracted to. Then you have to ask, what fundamental factors are the most important driving the currency movements ?
If you focus on the fundamentals, one main thing is going to drive the decisions you make in forex trading; interest rate differentials between countries . You may wonder what an interest rate differential is? That is a very good question! Imagine that the Australian Dollar has a 4% short term interest rate. This means that if you’re a debtor in Australia this will be the base rate that determines what you pay on credit cards, mortgages, and more . Also, if you happen to be a creditor you can use as the base rate this 4% short term interest rate that will determine how much interest income you make on your investments ; such as CDs from your local bank . Then imagine that the US Dollar has its short term interest rate , which the Federal Reserve sets , at 1% . So how in the world does what I just said affect currency movements ?
If the short term rate of the Australian Dollar is 4% and the US Dollar short term rate is at 1% it all becomes this simple: investors want their investments to have a higher yield and since Australia provides more interest then they take funds and move them to Australia. The investment shift of capital leaving the United States and moving to Australia leads to a weakening of the US Dollar because the supply suddenly becomes greater than the demand and this strengthens the Australian Dollar since the demand is greater than its supply. Economic fundamentals are working here ; when there is higher demand the value rises.
When you think about your own free forex training and what position to put on next , ask yourself , ” what country has the most liklihood of having higher rates moving forward and which country moving forward will probably have lower rates ?” Then buy currency that is the favorite for higher interest rates and sell the currency that you favor for weaker interest rates and see profits increase as investors flows leave the weaker currency and flock toward the stronger one . This is the essence of free forex training.