Global Market Flows And Important Trading Concepts
Probably the most challenging mission of a currency speculator is to investigate Global Economies. Why do we need that? – you may ask, to establish strong and weak currencies to deal them against each other.
In Fx Markets, money can be made in two ways. Money can be made on Interest Rates differentials and Exchange Rates fluctuations. Buying, or funding high-interest rate currency with lower interest gives you ability to profit from Interest Rate difference. This is a long-term strategy called “carry trade” and falls into Fixed Income Investment category in contrast to short term Exchange Rates speculations. This type of strategy is very popular among commercial Banks and Investment firms as their trading capital is immense; so, when you get paid on daily rollovers on a high yielding currency, it can be quite sizable.
Try to understand this, when you trade at that level, you’re not interested in getting few pips here and there, your focus shifts to longer perspectives, longer time horizons. This is the psychology of these big fund managers; they’re looking for high-yielding currencies; they’re looking for growing Economies; it is all about the Yields.
Strong Economies tend to attract fund managers to invest in their currencies or at least “park” their capital to keep it safe. This, in turn, creates demand for those currencies. Strong Economies that are in Expansionary cycles usually have higher Interest Rates, which means that their currencies offer higher returns for their Investors.
