Automatic Forex Trading

Automatic Forex Trading – What Is It?

Well, first and foremast , automatic forex trading, like any form of speculation , has a goal that is more important than anything else ; making money ! So if we start with that premise , that making money is our goal , then in a massive global market market, how do we do this ?

First, figure out if you are a technical trader, fundamental trader, or a combination of both. Later we’ll have more articles on 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 have to ask, what fundamental factors are the most important driving the currency movements ?

If the fundamentals is what you’re focusing on , forex trading decisions are going to be driven by one thing above all others ; differentials in interest rates between countries . What exactly is an interest rate differential ? Great 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 base rate helps to determine what you pay on credit cards, mortgages, and more . If you’re a creditor you can use as the base rate this 4% short term interest rate that decides how much your investments make; such as CDs from your local bank . Now let’s suppose the US Dollar has a short term interest rate , which the Federal Reserve sets , at only 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 the short term rate of the US Dollar is 1% it comes down to something really as simple as this : investors want their investments to have a higher yield and since there is more interest in Australia they move their funds “down-under” or as the Aussies say, “down-unda mate” . This shift in investments of capital flows leaving the US and going to Australia leads to a weakening of the US Dollar since demand is smaller than supply and the Australian Dollar becomes stronger because supply is smaller than demand . 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 the next position to put on , ask yourself , “what country is likely to have 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 watch your profits grow as investors flows leave the weaker currency and flock toward the stronger one . This is the essence of automatic forex trading.