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Well, first and foremast , forex trade signals, like any speculation form, has one main goal; bring in money! If this is the premise we start out with, that making money is our goal , how is this achieved in our massive global market?

First you must decide if you are a technical trader, fundamental trader, or a combination of both. Later we'll have more articles on this topic , but we'll assume for now that you keep track of current events and world affairs and the fundamental side of this game is the one you're more attracted to. Then you have to ask, what are the most important factors fundamentally driving currency movement ?

If you focus on the fundamentals, forex trading decisions are going to be driven by one thing above all others ; differentials in interest rates between countries . You may wonder what an interest rate differential is? That is a very 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 will be the base rate that determines what you pay on mortgages, credit, and other debt. If you're a creditor you get to use this short term interest rate of 4% as the base rate that will determine how much interest income you make on your investments ; things like certificates of deposits (CDs) at the local bank . Then suppose that the short term interest rate of the US Dollar, which is set by the Federal Reserve, at 1% . How are currency movements affected by all this ?

If 4% is the short term rate of the Australian Dollar and the short term rate of the US Dollar is 1% it all becomes this simple: investors want their investments to have a higher yield and because they can get more interest in Australia funds are then moved by them to the land "Down Under" . This shift in investments of capital flows leaving the US and going to Australia mean that the US Dollar will weaken because the supply suddenly becomes greater than the demand and the Australian Dollar will strengthen since the demand is greater than its supply. Basic economic fundamentals at work here ; where there is more demand for something its value will rise .

Next time you think about your forex trade signals and your next position, you should ask, " which country will moving forward have higher rates and what country is likely to have lower rates moving forward ?" Then buy currency that is the favorite for higher interest rates and currency favored for lower interest rates should be sold and increase profits as investors flows leave the weaker currency and flock toward the stronger one . This is the essence of forex trade signals.

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