Automatic Forex Trading And What It's All About

First , automatic forex trading, like any form of speculation , has one very important goal that lies above all else ; making money ! If this is the premise we start out with, that our goal is to make money , then in a massive global market market, how do we do this ? The first thing you need to decide is whether you are a technical trader or a fundamental trader or both . Later we'll have more articles on this topic , but for now let's assume that you like to follow world affairs and current events and are therefore attracted to the fundamental side of the game . Then you must ask yourself , what are the most important factors fundamentally driving currency movement ? If the fundamentals is what you're focusing on , forex trading decisions are going to be driven by one thing above all others ; interest rate differentials between countries . What exactly is an interest rate differential ? Good question ! Let us suppose that the Australian Dollar has a short term interest rate of 4% . Meaning that if you are a debtor and you live in Australia this will be the base rate that determines what you pay on your home mortgage, your credit cards, etc . This also means that if you are 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 imagine that the US Dollar has its short term interest rate , which the Federal Reserve sets , which is 1%. How are currency movements affected by all this ? If 4% is the short term rate of the Australian Dollar and the US Dollar short term rate is at 1% it all becomes this simple: investors will seek a higher yield on their investments and since Australia provides more interest funds are then moved by them to the land "Down Under" . The investment shift of capital leaving the United States and moving to Australia leads to a weakening of the US Dollar since demand is smaller than supply and the Australian Dollar will strengthen since the demand is greater than its supply. The basics of economic fundamentals are working; where there is more demand for something its value will rise . The next time you are thinking about your own automatic forex trading and what position to put on next , just ask yourself , " which country will moving forward have higher rates and what country is likely to have lower rates moving forward ?" Then buy currency that is the favorite for higher interest rates and sell the currency that you favor for weaker interest rates and watch your profits grow as investors leave currency that is weaker and go towards the one that is stronger. This is the essence of automatic forex trading. Author: Peter Markham Thanks Pete.