What is Currency Trading?

When two parties engage in a transaction to buy and sell various forms of legal tender – whether U.S. dollars, British pounds, Indian rupees, Argentine pesos, Korean won, or any other unit – with the intent to make a profit, they are engaged in the business of currency trading. The profit from this transaction is derived from the differences between applicable exchange rates. Currency trading takes place around the clock on a global stage, and offers unrivaled profit potential for the astute investor. While active participation in the foreign exchange markets was once limited to only the most powerful institutional investors, today, technological innovation and powerful tools – like the ones found on this site – have made currency trading accessible to the common citizen.

Real-time information resources. Real-time profit opportunities.

Welcome to the largest investment marketplace in the world. Each business day, almost $2 trillion worth of currency trades take place on the global foreign exchange markets, providing unparalleled profit opportunities for institutional and individual investors alike. Operating around the clock and at lightning speed from world financial centers such as London, New York, Tokyo, Sydney and Bahrain, this dynamic industry relies upon vast quantities of real-time information to facilitate prudent decision-making. Whether your trading desk is perched high above the city streets in a gleaming skyscraper or merely tucked into a comfortable corner of your home office, modern digital technology has evened the playing field for all market participants by providing access to a wide range of high quality analytics. With the simple click of a mouse, investors can now perform currency conversions using both current and historical data, check interactive cross-rate tables, and review interactive foreign exchange rate tables. Once available to only the most sophisticated international bankers, these affordable, easy-to-use resources can become powerful tools in the hands of every savvy foreign exchange investor.

The world on your desktop

Originally developed as a means to facilitate commerce between neighboring nations, currency trading has evolved into a complex, highly profitable, global industry that significantly impacts governments, financial markets, businesses, and – ultimately – almost every human being on the planet. The constantly changing supply and demand for individual currencies at any point in time determines a value for which the currencies can be exchanged, and investors attempt to anticipate these values and profit from them. While some 170 different currencies are available to be traded today, most actual trades are confined to a specific group of 36 currencies. Cumulatively, these foreign exchange transactions amount to a daily volume of nearly $2 trillion taking place between various parties on six continents, representing the single largest investment marketplace in the world – all accessible from a personal computer with an Internet connection.

The foundations of exchange

From the bills of various denominations that fill our wallets and purses, to the coins that weigh down our pockets, we are all familiar to some extent with currency. In addition to being a form of money that allows us to purchase goods and services as well as settle debts, currency is a stored value system that allows two parties to confidently engage in barter. Currency is also a convenient means of payment because both parties to a transaction have faith that the money is actually worth something, and is backed by a known value.

Just as each individual country has its own form of currency for conducting trade within its borders, there must exist a means of exchange – or a way of converting one form of currency into another – in order for countries to trade with each other. In fact, the primary function of currency trading – also known as foreign exchange, forex, or simply “FX” – is to facilitate international trade. Without this vital economic lubricant to keep the engines of global commerce in peak operating condition, our world would be a very different place today.

From small-time to big-time

On the most basic level, a traveler to a foreign country will convert some of his or her home currency for a foreign currency – either before heading abroad or soon after arriving there – in order to be able make purchases in the local currency. Most travelers aren’t terribly picky about exchange rates when they make this conversion, and simply accept the prevailing rate posted by the exchanger out of convenience. Travelers using credit or debit cards in a foreign country will find that their financial institution automatically calculates the conversion using an exchange rate of their choosing. But in the grand scheme of things, these transactions are generally considered to be insignificant, and rarely do individual consumers contest the rate of exchange that has been applied to these types of conversions.

On a grander scale, individuals, businesses and organizations frequently need to change several thousands or millions of currency units at one time. Importers often need to pay for large shipments of foreign-made goods in the local currency of the manufacturer. International banks often agree to loan a large sum of money to foreign corporations and governments. In these situations, it is essential for at least one party – if not both – to obtain the most favorable rate of exchange possible, either at the time of the transaction, or at some known point in the near future. This is the essence of foreign exchange.

A highly profitable business

Participants in the foreign exchange marketplace attempt to profit from successfully anticipating fluctuations in the exchange rates of different forms of currency. In the world of equities trading, investors are familiar with age-old adage, “Buy Low, Sell High.” The same general principle applies in currency trading, but foreign exchange speculators are focused on more than just a single price. The act of buying a certain amount of currency always involves selling a certain amount of another currency. In most cases, the currency being sold is actually being borrowed by the investor, and is akin to a margin-type situation encountered when trading equities. Therefore, investors trading on the foreign exchange market must be concerned with multiple variables: individual currencies; exchange rates; time factors; and interest rates. When managed properly, these four elements can yield significant profits.

A global marketplace

Typical foreign exchange traders include banks, corporations, brokers, governments and even individual investors from every corner of the world. The overwhelming majority of foreign exchange transactions don’t involve the physical transfer of any currency at all. If they did, all of the ships and airplanes in the world could not carry the paper bills and coins that are represented in these daily exchanges, nor could they do it at the speed necessary to effectively consummate the transactions. Rather, currency trades on the foreign exchange market are accomplished by means of computer-generated accounting entries that reflect deposits of currency held at financial institutions around the world.

The overwhelming majority of foreign exchange transactions each day – estimated at a volume of nearly $2 trillion – are executed for the sole purpose of profiting on the transaction, as opposed to being tied to the sale of goods and services between nations. This makes the foreign exchange market about 50 times larger in volume than the global equity markets. It’s no wonder than participants in foreign exchange trading are motivated by the huge profit potential that can be realized by accurately anticipating fluctuations in currency values.

The virtual exchange

The global nature of the foreign exchange marketplace means that it has no centralized trading floor, no set hours of operation, and no individual governing authority. Trades are conducted at all hours of the day and night around the world, and the parties to the exchanges are bound only by certain conventions, principles and faith that the transactions are legitimate. While individual governments may enforce statutes regarding foreign exchange dealings that take place within their own borders, there is no international regulatory body that polices the industry per se. In spite of this apparent lawlessness, the world of foreign exchange is actually an orderly, self-regulating marketplace that normally conducts its business smoothly, efficiently, and with blinding speed.

Today, the foreign exchange markets represent a unique, hybrid blend of public and private interests that is unduplicated in any other global business sector. In spite of dramatic changes in world political structure and numerous technological innovations that have been introduced over time, the basic underlying principles of foreign exchange have remained constant for centuries.