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Defining Currency Trading!

Aug 17, 2007
The currency of a nation is of great importance to the financial growth of that country. Every currency has a value relative to the other currencies on the planet. Thus currency trading can be described as the trade that uses the purchase and sale of large quantities of currency to leverage the shifts in relative value into profit.

Also it can be stated that currency trading provides really good opportunities and percentage returns, which is virtually impossible in a low leverage market.

Until recently, the currency trading market was quiet closed to the small investors. Banking conglomerates and large multinationals were the main movers of this market place. But in the recent years, however, new technologies have opened the doors to investors of all stripes to participation in the currency trading.

Thus making it difficult to miss the enormous benefit of this 'new' market for the individual investors. Higher returns with lower risk, given the same amount of market knowledge have a very small downside.

Why Currency Trading:

There are two reasons the relative value of a currency fluctuates. The first is because of a real market. The outside investors or visitors, who wish to buy things within a country, are forced to convert their domestic currency into the currency of the country they are buying within.

In similar terms, as money leaves the country, people must sell their currency for the foreign currency they will need to spend or invest abroad. Thus currency trading comes into picture.

The second force for currency fluctuation is speculation for currency trading. As investors feel a given currency will act strongly or weakly, they will buy or sell accordingly. This speculation can have drastic consequences on a national currency and consequently on a country's economy.

To understand better we can take the help of an example. During the East Asia Crisis in 1997, as nations in Asia began facing economic downturns, speculators used currency trading to realize enormous profits and in the view of many analysts, it helped to exacerbate the problem.

Currency Trading, in many aspects, has many real benefits over equity trading like the stock exchange. The spreads for currency trading are extremely low, making the cost to a trader very low as well.

The volatility of the currency market is extremely high, which means that a trader dealing with currency trading can generate enormous return on a given exchange. The ratio of volatility to spread can be said to be approximately 500:1 for the Currency Trading market, as compared to 100:1 for even the most ideal of stocks.

The Internet has made currency trading possible for ordinary people to trade currencies right from the comfort of their home. Initially the banks and financial brokers performed currency trading only. Online currency trading enjoys the best liquidity in the world and the trades are worth more than that on several stock exchanges of the world put together.

Actually, the orders for currency trading on the online source surpass that of the bond and stock markets put together.
The main reason for currency trading by the means of the Internet is hedging for speculative purposes where people make profits worth billions of dollars in a matter of a few minutes or hours. Moreover, the currency trading market operates continuously throughout the world except on holidays.

Always keep in mind that as a currency trader, you must buy a currency whose value can rise and sell the currency, which can depreciate. You must keep purchasing for long intervals, that is buy at a low price and then sell the same at a higher price.

Having a short position implies selling a currency that can fall and then purchasing it at a lower price. Most trading is speculative bases on events that can happen.

However, political developments also influence the trend of the currency markets. As a wise trader in currency trading, you must study the macro and micro economic factors that influence currency markets across the world.

This includes a detailed study and analysis of the inflation rate, the rather fiscal and monetary policies, and the interest rates of that particular country.

Thus currency trading is an important aspect of the nations financial growth.
About the Author
William Smith the author provides much more financial information on many subjects as well as the secret to his success in the market along with 5 Free power stock picks emailed daily so grab your Free subscription on his website at Currency Trading (All is Free)
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