Why Do We Need A Currency Exchange

Category: Finance, Currency Trading.

The Forex market is used to trade one currency against another.

This is an international market covering the entire planet, and has no specific central exchange, unlike all the other financial market you can think of. The professionals refer to this as foreign exchange, more commonly referred to as Forex or FX trading. It is also the biggest markets you can imagine, with almost 2 trillion dollars changing hands daily( that's an awful lot of zeros) . Well, An international currency exchange is necessary in many situations: - Consumers will come into contact with a currency exchange when they travel overseas. Why do we need a Currency Exchange? They go to the bank or their local currency exchange bureau to convert one currency( usually their own currency) into another( the currency of the country they intend to travel to) so they can buy goods or services in that country. They will find that the amount they paid in the foreign currency will have been converted to their local currency by their credit card company, and will appear on their credit card statement.

Consumers often purchase goods in a foreign country or over the Internet using their credit cards. Although each such currency exchange is relatively small, the aggregation of all the millions of such transactions every day is very significant. For example, if they sell goods to another country and get payment in that country's currency, that payment must be converted into their own currency. Businesses must convert currencies when they conduct business outside their own country. Similarly, if they import goods or services, their businesses will often have to pay in a foreign currency, which requires them to first convert their home currency into foreign exchange. The timing of these transactions can have a huge effect on their overall profits. Big companies convert enormous amounts of currency every year, maybe tens of billions of dollars.

Commercial and Investment Banks trade currencies to support their banking processes. Governments and central banks trade currencies in attempts to improve national trading conditions or in attempts to manipulate or adjust economic or financial imbalances. They also use the currency markets for hedging and trading purposes. Although they do not trade for speculative reasons they are often very profitable, since they generally trade on a medium to long- term basis. If a Swiss investor buys shares in an American company on the NASDAQ exchange, he must pay for the shares in U. Investors and/ or speculators( traders) require currency exchange whenever they trade a foreign investment, whether it is in equities, bank deposits, bonds, or real estate. He' ll probably have to convert Swiss francs to U.

Dollars. Similarly, an English real estate investor selling a New York property will need to convert the proceeds of the sale from U. Dollars to complete the deal. Because the value of one currency continuously varies against the other currencies, investors and speculators can directly trade these currencies in order to profit from their movements. Dollars to British Pounds. For example, if an English investor forms the opinion that the Japanese economy is strengthening and expects the Yen to appreciate in value( i. e. , go up relative to other currencies including the pound) , then he may want to buy Japanese Yen, taking what is referred to as a long position( expecting a rise) . Importantly, investors and speculators can profit whether currencies becoming stronger( by taking a long position) or become weaker( by taking a short position) .

Similarly, if an American investor believes that the Euro is about to go down, he may sell the Euro to take a short position( expecting a decrease in value) . Many speculators are day traders, meaning that they set out to take advantage of regular market movements over very short time periods, often buying a currency and then selling it again very soon afterwards( sometimes in just a few seconds) . The market was exclusively the preserve of the big banks and other huge institutions. Until a few years ago this market was very difficult if not impossible to enter for the individual, because of the huge investment and very expensive facilities needed. There has been an enormous explosion in interest in trading the Forex markets over the last three or four years, as single individuals have discovered that they can now set up and compete on equal terms with the huge trading corporations. FX Traders are attracted to currency trading for several reasons, including: - the volatility of the market, which gives them regular opportunities to earn money. the enormous liquidity of the markets. Individuals working from home, using a desktop pc and an internet connection can purchase and download the training and expertise they need, together with the trading software and forex data feeds also required, and the be off and running- often making more money than they could ever have managed if they had been working for one of those huge corporations referred to earlier( and keeping all of it too) .

Unlike most other markets, there is just so much money in the system at any one time that it is hard to imagine a situation where you could not trade. the currency exchanges are open 24 hours a day. Nowadays an account with a spread trader can be set up and funded in seconds, and the only charge is the spread or difference between the buying and selling price, which can be as low as 2 pips( pip is the smallest unit traded, and you can often trade as low as one or two dollars per pip) . From Monday to Friday, 24 hours per day, the market is active and money can be made. currencies can now be traded with no brokerage charges. Very low entry costs. Probably less than a thousand bucks for a genuine business that( if you are successful) can produce an extremely good lifestyle. A newcomer can enter the market for as little as the cost of a PC, videos and software, some training books, probably one or more trading systems to get him started, and a datafeed to provide instant currency prices( good free ones are available too) . Even lower overhead costs.

Costs are limited to broadband running costs, and lots of, a little electricity coffee. No staff, no expensive commuting, no offices( unless you want to) . Tax- free status. With tax at 40% on earned income here, this means that instead of getting just 60 bucks out of every 100 bucks I earn, I keep the lot. In my country at least( The UK) I pay no tax on my trading income. And this equates to around 66% extra income( 60 x 66= 100) . So if you are thinking of trading as a way of earning an online income, come on in, I say, the water's lovely.

Now that's an incentive! And if you are thinking that maybe you aren' t cut out for this sort of thing- no math qualifications, no talent with numbers, I say rubbish! You could pleasantly surprise yourself! It will cost you very little to find out whether you are cut out for the trading lifestyle or not, certainly far less than getting into internet marketing or setting up an offline business only to find you don' t like it or can' t cope. Some of the very best traders I know are really average, self- taught folk who didn' t think for a single moment that they could handle forex trading. This is the first of a series of articles introducing newcomers to internet- based forex trading.

Oh, and many of them are women! Subsequent articles will be launched at intervals. This and the follow- on articles( and many others too) can be found at my web site( links in the final paragraph)