The best time to buy and sell currency pairs can be more complicated in forex trading than it looks. While there are currencies that will surely make you profit, what separates a profit from a loss can be down to the wire.
Why do rates change?
The price between currencies don’t remain stable for long, and they can change rapidly based on circumstances like:
Action by central banks;
Trade wars, tariffs, and other international economic policies;
Political movement in the currency’s country of origin; and
Current employment rates and trends around the world
The kind of currency pair you’re trading will also play a key role in buying and selling. Some major pairs will always have high volatility and liquidity. In contrast, minor or commodity pairs will rely on more specific circumstances for their rates to shift. Rates can also change based on the actual movement that it takes throughout the day. This is where things like fundamental analysis come in handy.
What should you look out for?
First of all, you need to take a look at the lots you have to work with. Forex trading doesn’t allow an exchange of currencies on a one-to-one basis, so you have lots that you can use to trade with on the market. Factors like your broker’s arrangements, the size of your live account, and the money you’ve put in that account can affect your size lot.
When to buy and sell currencies
The rule surrounding buying and selling currency is simple: buy when you think the base currency will rise and sell if it falls. For example, you’re trading EUR/USD. You’d expect to see an average movement of around 40 to 60 pips with this currency pair on a typical day. That can make or lose you money in minutes.
Let’s say that the global headlines that morning are about the US economy crashing because of extended tariffs and continuing trade disputes with its closest trading partner. Since the economic inflow of cash to the US doesn’t look too good, the US Dollar will start to weaken against the EUR. That’s when you start buying.
But, let’s say that after lunch, news also broke out that the EU will start moving some of its manufacturing to the US because of Brexit. Cash inflows to the US will increase since most manufacturers will convert their EUR into US Dollars. That’s when you start to sell. Come afternoon, and you may shift most or all your lots into trading with the US Dollar.
Sometimes, economists will release their predictions ahead of schedule, or multinational companies will release their evaluation of their planned investments for the next quarter. All of these can cause the rate of your currencies to change, which you can regularly track with an economic calendar.
Any forex trader should keep an eye on their chosen currency pair’s geopolitics and economic decisions. Proper analysis and evaluation of these factors can help you gain massive profits by leveraging your lots or limit your losses significantly.
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