Forex Signal Service – What Is It?
Well, first and foremast , forex signal service, like other speculation forms , has one very important goal that lies above all else ; make some money ! So if we start with that premise , that our goal is to make money , then how do we do it in this massive global market ?
The first thing you need to decide is if you are a technical trader, fundamental trader, or a combination of both. In the future we’ll have more articles regarding 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 . You would then need to ask yourself , what fundamental factors are the most important driving the currency movements ?
If you focus on the fundamentals, there is one thing above all else that will drive your forex trading decisions ; interest rate differentials between countries . What exactly is an interest rate differential ? 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 base rate helps to determine what you pay on your home mortgage, your credit cards, etc . Also, if you happen to be a creditor you can use as the base rate this 4% short term interest rate that decides how much your investments make; things like certificates of deposits (CDs) at the local bank . Then suppose that the short term interest rate of the US Dollar, set by the Federal Reserve , at 1% . How does all I’ve just said affect the movements of currency?
If the short term rate of the Australian Dollar is 4% and 1% is the short term rate of the US Dollar it’s all as simple as this : a higher yield is sought by investors and because they can get more interest in Australia then they take funds and move them to Australia. The investment shift of capital leaving the United States and moving to Australia weakens the US Dollar because the supply suddenly becomes greater than the demand and the Australian Dollar will strengthen since the demand is greater than its supply. Economic fundamentals are working 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 , just 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 watch your profits grow as investors flows leave the weaker currency and flock toward the stronger one . This is the essence of forex signal service.
