I, much of Europe was left in ruins. For example, the city of Berlin, Germany, was divided into east and west, and were separated by a large wall until 1990.
The divide in the economy led to different currencies in western Europe and in communism eastern Europe. This meant there was a need for currency traders, who are financial traders who buy and sell currencies from across the world to investors who want to make profit from the fluctuation in exchange rates.
Today, currency trading is done digitally through financial markets. It is one of the largest marketplaces in the world. In 2018, over $11 TRILLION dollars worth of currency changed hands through this market, according to the Intercontinental Financial Association.
Banking institutions and financial companies hire currency traders to serve investors through their companies. As a Currency Trader, you will buy and sell currencies for investors who want to gain or hedge their investment portfolios against foreign-currency risk.
When you travel overseas, you likely realize how much your U.S. dollars worth less when exchanged into foreign currencies like Euros or Japanese yen. This loss of value is called “depreciation.”
Similarly, when the exchange rate appreciates — or gains value — the dollars you have invested in foreign currencies like the Euro increase in value. This is called “appreciation.”
Appreciation and depreciation affect the price of goods and services in different countries. For example, a shirt may cost $20 in the U.S. But £3 in the United Kingdom and 20 EUR in Europe. If the U.S. dollar appreciates, the British and European customers won’t be able to afford the same shirt at that price. Similarly, if the dollar depreciates, the U.S. customer will have to pay more for the same shirt.
Because of these fluctuations in exchange rates, financial traders b currencies in financial markets around the world to take advantage of price differences and earn a profit. Currency trading or “forex” is the buying and selling of foreign currencies, or coins (e.g., Euros, Yen, etc.) to prepare for or recover from foreign exchange transactions.
Traders try to predict if the currencies will go up or down in value compared to another currency that is traded.[/inspiro_quote]
Currency traders act as the middlemen in these transactions, facilitating the trade between parties who want to buy or sell foreign currency. The traders buy and sell currencies at a higher or lower price to make a profit for their clients.
How does currency trading work?
Trading currency works much like any other financial securities market. Traders buy and sell currencies at a higher or lower price than their cost value to make a profit. The high-risk high-return investment potential attracts investors and corporations to currency traders uy and sell Enable access
Currently, more than 90 percent of the world`s business is transacted in U.S. dollars, which is the primary currency used for international trade.
As an exporter or importer, it is imperative that you have access to enough dollars to meet your business`s future export/import obligations.
If you anticipate that the exchange rate (price) of the dollar will decline against your domestic currency, you may wish to buy dollars in the foreign exchange (forex or FX) market to sell at a later date when the value has increased. This is known as a futures trade. (For more on futures, see our Derivatives Primer.)
As a purchaser of goods from foreign companies, you typically will be paid in dollars; however, if you wishes to convert these funds into another currency, you must obtain an appropriate exchange rate and convert the dollar amount into the new currency. If you have obtained a forward contract to buy foreign currency (usually in much larger amounts than those bought through a futures trade), you can sell the currency at a fair exchange rate and then use it to pay your debts in your domestic currency. If you have forex options, you can elect to buy at a specified exchange rate on a specified date in the future.
Currency traders buy and sell currencies at a higher or lower price to make a profit for their clients. The high-risk high-return potential of foreign exchange trading attracts investors and corporations that need access to foreign currencies in exchange for U.S. dollars immediately or in the near-term. Forward and future contracts are traded over the counter (OTC) rather than on an exchange, whereas options are traded on exchanges. (To learn more about the different financial markets, read Our Financial Markets: A Top to Bottom View).
What is the role of the intermediary?
Advisors or brokers act as the middlemen in these transactions, facilitating the trade between parties and usually taking a fee for their services. Intermediaries also provide advice to clients on which trades will yield the most profitable returns.
What are the characteristics of a good forward or future contract?
Both futures contracts and forward transactions must have these four elements to be viable.
Identifiable Terms – All parties to the contract must agree upon the conditions of the contract, including when the contract takes place and what currency will be traded.
Prior to establishing the terms, both parties should assess the future price of the currency and whether there is an expected change in relation to a benchmark such as LIBOR (the interest rate offered by major banks in London).
Sufficient Oil – If there is not enough oil to fulfill the forward contract, then the P&L (profits and losses) of the trade will be negative infinity. This means that although you paid a set dollar amount for the foreign currency, you were unable to redeem it because there was no currency left due to the