Jul

Understanding What Forex Signal Service Is All About

By emily

First , forex signal service, like other speculation forms , has a goal that is more important than anything else ; make some money ! So if we start with that premise , that our goal is to make money , how is this achieved in our massive global market?

The first thing you need to decide is whether you are a technical trader or a fundamental trader or 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 are therefore attracted to the fundamental side of the game . Then you must ask yourself , what fundamental factors are the most important driving the currency movements ?

If focusing on the fundamentals , forex trading decisions are going to be driven by one thing above all others ; the interest rate differentials between various countries. What is an interest rate differential ? Great question ! Let us suppose that the Australian Dollar has a short term interest rate of 4% . This means that if you live in Australia and you’re in debt this will be the base rate that determines what you pay on mortgages, credit, and other debt. Also, if you happen to be a creditor you get to use this short term interest rate of 4% as the base rate that determines the income you get on investments ; things like certificates of deposits (CDs) at the local bank . Then imagine that the US Dollar has its short term interest rate , which is set by the Federal Reserve, at 1% . So how in the world does what I just said affect currency movements ?

If the Australian Dollar short term rate is at 4% and the short term rate of the US Dollar is 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. This shift in the investments going to Australia from the US leads to a weakening of the US Dollar since demand is smaller than supply and the Australian Dollar becomes stronger because the demand suddenly becomes greater than supply . Basic economic fundamentals at work here ; when there is higher demand the value rises.

The next time you are thinking about your own forex signal service and the next position to put on , you should ask, ” what country has the most liklihood of having higher rates moving forward and what country probably will have the lower rates moving forward?” Purchase currency that is the high interest rate favorite and currency favored for lower interest rates should be sold and increase profits as investors flows leave the weaker currency and flock toward the stronger one . This is the essence of forex signal service.