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Thursday, December 30, 2010

Trading Foreign Exchange

A couple of weeks ago I got an inquiry from a group of guys (DIYers) who wanted some guidance on trading foreign exchange. My response:

There are a number of online trading sites for FX that provide educational materials and practice accounts. I would suggest you guys open up a practice account and see how you do. As you know FX trading, as almost everything in investments, is trickier than it looks.

For fun you might want to learn about the purchasing power parity theory of the long term influence on exchange rates as expressed by the "Big Mac" Index. See this video

This comes from the Economist magazine which is a good resource for currency traders, especially if you are going to use a fundamental (as opposed to chartist) approach.

Some links you may find interesting:

Good luck guys. I wish I could be more helpful but I have enough on my plate guiding investors through the world of low cost ETFs (actually you may want to start with ETFs).

I would also add that I follow the dollar at Type dxy:ind in the quote box and get:

This is a quick take on how the dollar has traded versus the currencies of its major trading partners on a weighted basis over the past year.

Another useful link is:

currency etfs

This is Bloomberg's link for "top currency ETFs." This might be the best way to start for those who want to dabble in foreign currencies.

Finally, consider an old edition of Mankiw's "Principles of Macroeconomics" text available at used texts . The latter half of the book has some basics on currencies and international economics that are nicely presented and very useful.

Good luck!


  1. Trading currencies is very close to gambling and before you open fire with all you have at me for saying this, check out some stats on % of winners vs losers....

  2. That's exactly why I said "'s trickier than it looks" and try it out with a practice account first.
    It is a difficult game for sure.