If trading stocks is like driving a speedboat, than trading currencies is like driving a barge. Specifically, macro factors influence currencies and consequently take a long time to materialize. Therefore, price movements are more sweeping than spiking, like volatile stocks.
Because long-term patterns are easier to gauge in currency trading, short-term trading is arguably easier, too. If a currency is anticipated to devalue over the long run, shorting the currency every day will result in more right days than losing days. Many currency traders will wait for a long-term trend to develop and exploit this opportunity by making several short-term trades.Currency trading should be used in conjunction with your stock and bond trading, not in isolation. In other words, you are not going to be right all the time and currency speculation can be used for hedging. When you have an overall long position in stocks in your portfolio, currency trading can provide a hedge against a stock market reversal.Take a closer look at the companies you own in your stock portfolio. If a large amount of the companies you own have great exposure internationally, an appreciating dollar will adversely impact your portfolio. You can hedge against this scenario by going long the dollar in the currency market. If the dollar rises, your currency trade profits, while your stocks may suffer. All the major financial institutions approach their assets in this manner.
