Well, first and foremast , forex signal service, like any form of speculation , has one main goal; making money ! If this is the premise we start out with, that making money is our goal , then in a massive global market market, how do we do this ?
First you must decide whether you’re a fundamental or technical trader, or perhapse both . In the future we’ll have more articles regarding this topic, but now let’s just assume you like keeping up with current events and world affairs and you are more attracted to fundamental trading . You would then need to ask yourself , what are the most important factors fundamentally driving currency movement ?
If the fundamentals is what you’re focusing on , there is one thing above all else that will drive your Forex Trading decisions ; differentials in interest rates between countries . You may wonder what an interest rate differential is? That is a very good question! Suppose there is a short term interest rate of 4% on the Australian Dollar . Meaning that if you are a debtor and you live in Australia this will be the base rate that determines what you pay on credit cards, mortgages, and more . If you’re a creditor you can use this 4% short term interest rate as your base rate that determines the income you get on investments ; which can include certificates of deposites that come from a bank locally. Then suppose that the short term interest rate of the US Dollar, which the Federal Reserve sets , at 1% . How are currency movements affected by all this ?
If the short term rate of the Australian Dollar is 4% and the US Dollar short term rate is at 1% it’s all as simple as this : a higher yield is sought by investors and since Australia provides more interest they move their funds “down-under” or as the Aussies say, “down-unda mate” . The investment shift of capital leaving the United States and moving to Australia weakens the US Dollar since demand is smaller than supply and the Australian Dollar becomes stronger because the demand suddenly becomes greater than supply . Economic fundamentals are working here ; when there is higher demand the value rises.
When you think about your own forex signal service and your next position, ask yourself , “what country is likely to have 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 currency favored for lower interest rates should be sold and see profits increase as investors go towards stronger currency and leave the weaker one . This is the essence of forex signal service.
