Forex trading can be extremely complicated and challenges even the best of traders, and that’s before looking at the specific ins and outs that come with specific currencies, currency pairs, and other economic factors that can affect these trades. Then there are also the various off-shoots or differing types of currency trades like carry trades, scalping, or even binary options.
These are all important concepts to understand if you want to know how to trade in a way that will help you earn long term profits. The first thing you need to know about is leverage. Leverage is the key behind how people can make so much money with a single trade, or lose so much is some things go wrong. Generally speaking $1 put up for trading equals $100 on average although sometimes depending on the broker you might get a 150:1 or even 200:1 ratio.
While a higher ratio can conceivably lead to higher profits, they can also make the trade more volatile so this is a two-edged sword.
Potential Correlation Issues
Every currency has its own personality. Certain correlations will make a huge difference. The AUD, for example, is tied closely to the price of copper. High copper prices mean higher AUD value, low prices go the other way. Since New Zealand’s economy is so tightly tied to Australia’s, it is also affected by that. The Swiss Franc is often seen as a safer currency so when markets are in turmoil in general, the CHF tends to often see a strong upswing.
The price of gold and the USD also have a strong inverse correlation. Gold is seen as important for when the Dollar is weak. High gold prices usually mean a weak USD. A strong USD usually means lower gold prices.
These are reports you have to keep an eye on if you are going to trade the Forex successfully.