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The 3 Most Common Ways to Trade Currencies

Jun 3, 2008
When you look at the Forex market, you obviously know that is came about to accommodate the trading of currencies on a global scale. Today, there are almost as many currencies traded as there are countries to trade them. Currency markets have become one of the most popular day trading markets. Increasing numbers of investors and traders have been attracted to the market because of its high daily volume and its liquidity. Trading currencies occurs in a number of ways, however the ones that are the most common are the three that are discussed in this content.

Exchanging currencies with foreign banks - usually the most popular way of trading currencies with business travelers and vacationers. Normally, when people travel for either business or pleasure on an international basis, they trade their currencies for the type used in the country that they are visiting. In most cases, you would venture into a local bank and trade your currency there at their currency exchange window. This method works well for the business person and vacationer. Unfortunately, this method of trading currency is not suitable for the serious investor or trader since it only involves the basic exchanging of currencies without the ROI factor taken into consideration.

Forex (foreign exchange) - the most popular format for trading currencies on a global scale. Forex trading has grown significantly in popularity and dates back to the 1800's when people used to wire transfer funds between London and New York City. Currently, the most popular trading in the forex market is done between the Euro and United States Dollar (USD). Since the forex is a global market, it operates 24 hours a day.

Additionally, as well as the fact that the trades are done on a direct basis, there are no contracts involved with Forex trading. Trading is done in what is called "lots." This is the measurement of a currency trade, whereas stocks are normally traded in shares. The size or amount involved in a "lot" is usually determined by the broker involved in the trade, however, the common amount is normally around $25,000. Normally, the trader borrows most of the lot's amount from the broker, since they do not need to cover the entire amount from their personal trading account.

Currency Futures - futures markets that are based on the currency market. These types of markets generally trade one currency for another on a contractual basis. The timeframe involved is normally three months with the most popular market being the EUR futures market where the trading is based upon the Euro to USD exchange rate. The Chicago Mercantile Exchange, which is now called the CME Group, is where one will find the most popular of the currency trades, and includes the following futures markets:

* CAD - The Canadian Dollar to US Dollar futures market
* CHF - The Swiss Franc to US Dollar futures market
* EUR - The Euro to US Dollar futures market
* GBP - The British Pound (Sterling) to US Dollar futures market
About the Author
Justin Stewart has used software to automatically trade the forex market allowing him to earn a living without lifting a finger, even while he sleeps. You can use the same forex software to get the same results.
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