Forex Trading can be very profitable if you are good at predicting economic and political changes, as many times this can increase currency which leads to a good profitable Forex Trade. When looking at political events that will effect Forex Trading you should look at the obvious like missile launches, wars, terror attacks, global meetings like G7 or OPEC that have wide reaching effects. A good example is when Saudi Arabia said they were going to cut oil production by a million barrels after the price of oil dropping over 10% in less than a week in October 2006. The Saudi cuts in production were to take effect on November 1,2006 an again in December and if you would’ve invested as many did mid October in the Saudi’s oil producing rival Canada to gain from this change you too could’ve made huge returns. Many invested in the Canadian dollar going long over the US dollar, as all this additional oil business going to Canada should strengthen the GDP and economy and increase the currency an it did, there was as much as 70 points gain in one day in late October.

In truly understanding economy of a country and how it effects their currency, you first need to understand that there are two types of economic flow: trade flow and capital flow. To simplify things trade flow relates to how much income a country makes through trade, capital flow is how much foreign investment interest there is in a country. Countries are effected by different things some more by trade and others more by investment. Some of the countries that their strength are dependent on trade flow are Canada where oil is main traded commodity and source of income, Australia where industrial and precious metals are primary commodities, New Zealand where agricultural products are main commodities, Japan and Germany both have a variety of traded items that from cars to technology items that make up their world trade.

In the US and UK capital flow is much more important and foreign investments are important and can greatly effect the economy and currency value. To show you what I mean in the US financial services or investments are approximately 40% of the total profits of the S&P 500 which is rather significant. To understand how important investment is look at the US where with the multi billion dollar trade deficit and multi trillion dollar debt the dollar should be greatly depreciated. As stated capitol flow though the US economic system and currency is largely effected by foreign investment and the huge capital invested by the rest of the world in the US offsets the negative effects of the trade deficit and debt and keeps the US currency strong. Some are concerned with the high debt, and huge trade deficit that the US may not attract enough foreign investment to keep the US dollar strong.

Forex Trading can be very profitable if you do your homework and understand what factors effect the economy and currency value of a certain country and which countries are more dependent on trade flow and which countries are more dependent on capital flow and when to capitalize currency changes.