Friday, 17 February 2017

5 Ways To Profiting From Forex trading



5 Ways To Profiting From Forex trading
       i.           Interest Rates.
We use two methods to profit from the difference in countries interest rates:
     ii.            Interest Income
  iii.            Capital Appreciation
    i.               Interest Income: This implies that if the interest rate of country A is at 5.25% while the interest rate of country B is set at 0.25% you could have taken advantage of this rate difference by borrowing a large sum of country B currency, country exchanging it for country A and using that to purchase bonds or CDS at the country 5.25% rate. In other words, you could have borrowed money at 0.25%, lent it out at 5.25%, and made a 5% return. Or you could sure yourself all the hassle of becoming a money lender by simply trading the currency pair to effect the same transaction.
  ii.         Capital Appreciation: - this is a situation where by between two currency pairs like USD /JPY spread 05/06, as the US interest rates stayed higher than Japan’s the dollar continued to increase in value. Investors who traded the dollar gained form interest income as well as the US dollar  capital appreciation.
    Economic Growth: In forex, Economic growth is best measured by a looking at EUR/USD country’s gross domestic products, or GDP, the United States and Eurozone running at $13 trillion and $11 trillion respectively. (2005-2016). the difference in growth rates between these two major economic power US & Eurozone was clearly reflected in currency movements (forex).
If the Eurozone is lagging significantly behind the United States in economic growth, averaging an anemic 2.5% rate throughout the year while the US expanded at a healthy 5% rate. Consequently, investment capital will flow Europe to the US causing EUR/USD to drop, a reverses of the above will also causes the EUR/USD to appreciate and verse versa.
3.     Geo-Politics: In foreign exchange trading (forex), geo –politics can be a veritable tool in predicting and winning forex trades.
Example, using the USD/CAD as a case study, if there is a political news or political instability like a “No –confidence vote” in CANADA for instance, it will cause the Canadian dollar to weaken against the dollar, and also a survival of this can cause the Canadian dollar to strengthen.
Geo-Political risk can also mean wars, terrorist attacks, or missile launches, but it can also relate to milder yet still politically powerful events such as G7 meetings and OPEC announcements.
4.     Trade & Capital flow: in forex trading, trade and capital flow can be a very crucial way to winning in forex trading. For Example, on the surface, the US currency, with its record multi-billion dollar trade deficit and near & $1trillion current account deficit should depreciate significantly. However, that has not been the case as the US has been able to attract more than enough surplus capital from the rest of the world to offset the negative effects of its massive trade deficits. For the time being, trade-flow deficits do not matter to the dollar. However, should the US become unable to attract enough capital flow to offset its deficits, the currency may weaken.
Also the issuance of bonds by a high interest paying country like New Zeland can cause the NZD/USD or NZD/JPY to strengthen or weaken as a result of trade flowing into the country.
5.      Merger and Acquisition: can be a very powerful tool to profit from forex trading. When a country’s capital assets such as equities, suddenly find favor from the rest of the world, they indirectly affect pricing in the foreign Exchange market as deal makers first have to buy the country’s currency before they can by the stock. But a reverse can also be devastating in the currency.

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