When interest rates go up (from central banks), inflation goes down, which strengthens a currency. When interest rates go down, it weakens a currency (sell).
Banks buy and sell trillions of dollars, or other foreign currency to maintain stability within their economies.
Reserve Requirement Ratio (RRR) is liquid currency to pay for mass withdrawals, held within central banks.
Deutsche Bank (a commercial bank), is the world's largest forex trading bank. Commercial banks are profit driven (big surprise there, who isn't?).
Proprietary desks (prop desks) exist within commercial and investment banks just like in stock market trading firms. They are profit driven and poorly regulated it seems.
Companies that do a lot of exporting hedge their risk using the forex market. When the value of the currency in an exporting country changes, contracts can take on fluctuating values. Therefore, companies go long to lock in profits. That was pretty cool to read about.
24hrs/5 days a wk, forex market open, not 24/7 like I said in a previous post. Here are forex times:
Most liquidity exists when markets are open. 3 factors affect the price of commodities:
1. Supply and Demand
2.Value of USD
3. Speculation on futures market
When USD goes down, commodities go up.
"When you fail to plan, you plan to fail."
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Next chapter was on trading styles and strategies. Based on a quiz in the book, I'm more of a swing trader or position trader. Typically, swing traders risk 50 - 150 pips per trade. An example holds a 50 pip stop and 150 profit target. This is a risk reward of 1:2 to 1:3 and up. Swing traders look at H1 and H4 charts (1 hour and 4 hour charts), and the trades last 1-7 days.
I wouldn't mind being a "mechanical" trader, which is basically one who automates everything.
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How does this help me make money?
I felt energized after this day's studying. All the info leads me into understanding what to watch in the news when implementing strategies. For example, I need to know:
1. Interest rates from central banks of each currency
2. The biggest exporters
3. A lot of info about commodities.
Just those are a handful, so I'll be on the lookout for websites, articles, etc. that will make that research easier.
So far I do my trading early in the morning and at night, which means I can catch Tokyo and Germany at night, and catch London and may be New York in the morning.
Next few chapters, I'll be learning actual strategies to enter and exit trades. Then, I'm going to practice particular ones (and explain them here) until I know them in and out, and see how they work for me for the rest of the year on MetaTrader.
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Finally, I read about these reverse ETFs for commodities today; an alternate way to short stocks since it's not offered on RobinHood. Based on the looming potential recession, and dropping oil prices, I went ahead and bought a couple shares of ERY for $58.85. We'll see what happens. I plan on holding it for just a couple days. It's been rising for the last few months, so I'm doing what I've read not to do and that's "jump on the band wagon" with rising stocks. I just want to stay active, but it's true, I have done NO research on this ETF. Later.
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