What Is Trading In Currency?

What Is Trading In Currency?

Posted on January 24, 2011 Admin

Today, even the common man has started trading in currency unlike the old times when this profession was reserved only for the big fish. I feel good to see that now; we even find professional colleges starting to teach trading in currency and opening a whole new set of professional avenues to the generation next. People do not require large money in their accounts to trade and courtesy internet; everything can be done with the click of a button. So we need to understand what this business is and to start with, we need to know what a currency means.

Currency of a country denotes the economy of a country. With 216 countries in the world, each of them enjoys its own nominated currency that circulates within the country and represents purchasing power of the holder. United States has “Dollar” as its currency popularly known as USD, England has “Pounds” and Europe has “Euros”. Similarly you will find different currencies for all different countries, each having its own value in the international market.

The interesting fact is that these currencies and their values in the international market keep changing against each other. You might find Dollar to have certain value against Swiss frank at some time but it you were to check the same price the next day, you would find a notable difference in their prices. It could depreciate or appreciate; big time or small whatever but it will definitely change and predicting this change is the essence of trading in currency.

What traders engaged in trading in currency do is that they speculate over this change and do buying and selling of these currencies accordingly so as to make profits from these fluctuations. If they are right in their judgments and the price actually changes as per their anticipation, then they gain. It’s just like buying some Euros with 100 Dollars that you may have and then buying back your Dollars with the Euros that you have at a time when by selling Euros, you can have more than 100 Dollars back. So you start with 100 dollars and have 110 dollars at the end. Isn’t that easy? In effect, you start from a position and you always come back to this position after the trade is closed i.e. (A man with Dollars), mostly, with extra ones. You of course need to wait till the price change to your favor which does take time and sometimes; the trade also goes wrong. But not to worry as losing also is part of the game. As a trader your job throughout is to create more number of wins than the number of losses.

This entire process of buying and selling is called trading in currency and is used by a common man to the richest strata to participate in these movements and make additional gains. Even the largest investment institutions design their portfolios around trading in currency and thus existing tycoons like JP Morgan’s, Merryl Lynch, Morgan Stanley and Societe Generale.

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