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Currency Trading
Trade the Global Economy
Why has the euro become so expensive relative to the dollar? How do traders profit in the currency market?
Learn how currencies work and how you too can profit
from movements in the markets.
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Profiting from Currency Moves

Once only open to large hedge funds and highly wealthy individuals, the currency market has become easily accessible to individual traders due to the growth of internet trading and the introduction of regulatory oversight. In this exciting 24-hour market, traders can take advantage of trading opportunities at any time of day since trading is not limited to business hours.

Currency traders buy and sell currencies with the hope of making a profit when the value of the currencies changes in their favor, whether from market news or world events. Read below to see how you can turn your view on the market into a trade-you might know more than you think!

Turn an Opinion into a Trade
Almost everyone has a view on how the economy is doing or where the stock market is going. The question is, how can you translate this opinion into a currency trade?

Let's say you believe that the US stock market will rally. A rallying stock market in the US is an ideal investment opportunity for investors from all over the world. Because of this, there is a strong correlation between the US equity market and the dollar. If the equity market is rising, investment capital will flow in to the US to seize the opportunity. On the other hand, falling equity markets will cause domestic investors to sell their shares so they can take advantage of better opportunities abroad.

Trade 1 - A rally in the US stock market: Good for the dollar, bad for the Euro
A trader wants to catch a move in the US stock market, which he believes will rally soon. If the stock market rallies, currency traders know that the US dollar will also go up (and thus the euro will go down) as international investors send their money to the US.

The EURUSD is now trading at 1.3400. To profit from a downward move in the euro, the trader would sell the pair (meaning sell euros and hold dollars).

When the move is over, the EURUSD trades at 1.3100. The profit is $3000.

Interest rates can also affect the price of a currency. Suppose you are reading about the economic situation in the UK and see that the market is expecting the Bank of England to raise interest rates over the next few months. This means that investments in the UK will now pay out higher returns. To take advantage of this situation, you would buy the GBPUSD pair and hold it until it appreciates.

Trade 2 - UK interest rate hikes: good for the pound, bad for the dollar
A trader reads that the market is anticipating that the Bank of England will raise interest rates in the coming months. Since higher interest returns will be available in the UK, the value of the pound will go up as more people invest.

At the end of 2003 the pound was trading at 1.6500. A series of interest rate hikes pushed the price to a high of 1.9500. To profit from this move, the trader would buy the GBPUSD pair-meaning sell dollars to buy and hold pounds.

A trader who got in at 1.7000 and closed at 1.9000 would have made over $20,000.

Why is chart reading so popular in FX?
Another popular strategy for picking trades is technical analysis, or chart reading, where traders use charts to assess buying and selling interest in the market. Charts provide a visual way to spot trends and ranges, and to find good entry and exit prices.

Hundreds of thousands of currency traders use charts to spot levels at which to enter and exit the markets-and in doing so, make these technical levels even more significant! Since technicals are self-fulfilling and not difficult to learn, they have become even more popular. Currency Charts

Where can I learn more?
You don't have to be an economic genius to trade currencies! Many traders begin to take advantage of opportunities in the FX market by learning how to read charts and following major news developments for the currencies that they trade. The easiest way to start learning is to download a practice currency trading account and making trades. Currency News

Test out your skills with a free practice trading account!
With a free demo currency account, you can place mock trades based on your opinion of where the market is going. To learn the mechanics of a currency trade and download a free practice account. Free Practice Account