Currency Trade Is Where The Currency Is Bought And Sold

Category: Finance, Currency Trading.

The title is deceptive actually.

Currency Trade is where the currency is bought and sold. What is being talked about is that if you are holding substantial amounts of Pounds, or Dollars or the Euro, you can use, or other currency that currency to make money on your currency by trading. Just like stocks and shares are traded in the NYSE or the NASDAQ. In stocks and shares, you are buying into or exiting from the companies in which you are holding stocks and shares, based upon the stock movements in the Stock Exchange, again based on supply/ demand equations. The difference in the two is only one. You bought low and sold high, depending upon your perception of how much you wanted to cash in, and how much you wanted to retain in the long term.

Currency trading works exactly the same way as the stock market does, based on demand and supply, but was earlier restricted to banks only. This depended on the individual company AND the way the market indices were moving. They traded on currencies based on values and requirements and whether the economic situation in that currency was good or likely to be good or bad, etc. For this they have set up separate funds. Today with the world having gone global, and individual countries freeing up foreign exchange regulations, even private companies( corporates) can trade in currencies. Today, if the US dollar is fetching say 2 British Pounds Sterling, and it is expected that since the US economy is going down, then the holding of that dollar would fetch only 1 British Pound Sterling.

Conversely, if it is felt that the economy of the US is doing better than the British economy, one US Dollar could fetch as much as 5 British pound sterling. So you have lost one British Pound Sterling. So you now have an opportunity to use the ETFs or your portfolio manager to go in for currency trading. But if the dollar is going down, you would get much less, say only 100 pounds. If you put in say$ 100 you would be getting 200 British Pounds sterling. Normally in currency trading, a long term option is used. Generally, the managers use a basket of currencies to trade, that smoothens the ups and downs of the currency market.

Because, it is based on long term indications of the currency of the country using it. Basket here means holding multiple currencies against which the dollar values goes up or down, and trade is accordingly conducted. That depends upon your countries Foreign Exchange Policy. As an individual, you will have to check whether you can yourself trade in the currency market. You will have to check it out with your investment group. But start slowly and hedge your bets always. If you are allowed, you can do pretty well.

It requires a lot of reading, keeping track of the global economy, and of course, your own economy your personal economy! Meanwhile, you can read up about it on various media, the internet, such as books, etc. Try it through your investment manager, and see for about six months what your return is.

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