Trading currency has always been considered a risky business. However, the reasons for these rumors are mostly invalid. While trading currency does involve a specific element of unpredictability, it still follows common economic laws, and its processes can be traced easily. Moreover, the possible revenues can be calculated with considerable precision. The most important, however, is the choice of strategy. Picking the correct strategy once is not enough; it is necessary to be flexible, adapting to the changing environment of the Forex.
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After opening an account with 1,000,000 USD, I started analyzing the currency market. According to the existing state of affairs, four majors had to be taken into account when defining the primary strategy:
- EUR/USD (euro/dollar)
- USD/JPY (dollar/Japanese yen)
- GBP/USD (British pound/dollar)
- USD/CHF (dollar/Swiss franc).
One of the greatest advantages of the Forex system was that it did not demand any commissions. Therefore, the basic costs that needed to be taken concerned mostly the variations of the currency values. Being a principals-only market, the Forex allows for more flexibility and, therefore, is a perfect place to raise one’s capital.
Once taking the above-mentioned into account, one could define the most viable strategy. Judging by the fact that the USD has recently lacked stability and that I had a relatively small capital at my disposal, I decided to start with the strategy that could prevent me from taking great losses. Defined as an arbitrage trade, the strategy of my choice concerned buying shares at a relatively small price and trading them for a slightly greater value. Though the given strategy did not allow for great profit, it still helped me retain most of my capital and at the same time get a chance to have at least some revenue. In several days, I managed to get about $510, gaining $12,080 and losing $11,570. That said, it can be considered that the arbitrage trade is a very safe yet not very profitable strategy for such a huge market as Forex.
As time passed, I felt like trying the strategy that would be riskier yet would take more chances with the probable revenues. That said, I decided to make efficient use of the so-called carry trade, which presupposed that the currency should be sold in a state with relatively low-interest rates, while the proceeds should be invested in the currency of a country with very high-interest rates. Choosing such states as India (7.50 interest rate) and Germany (0.75 interest rate) correspondingly, I started implementing a new currency trading strategy. This time, however, the risks were much higher, as well as competitive rates, which led to winning $34,670 one day and losing $29,100 the other day. Therefore, the carry trade turned out a much more thrilling yet considerably less safe experience.
Thus, with the help of a careful analysis of the currency market and a reasonable choice of strategies, as well as the ability to introduce changes into my plan, I was able to raise my revenues. Even though my income cannot be considered extremely high, given the initial capital, it is necessary to stress that I did not lose in the course of currency trading. Perhaps, if I could trade currency once more, I would have taken more chances and started carrying trade from the start. The given experience helped me understand how important market analysis is and how careful assessment of my assets can help in developing a currency trading strategy.