Foreign exchange currency trading is the practice of exchanging one country's currency for another country's currency. Currency trading involves four main variables: currencies, exchange rate, time, and interest rate. The interplay of these variables creates opportunities for small investors to obtain investment returns that are generally unheard of in the traditional investment world.

Ads


Today, over 85 per cent of all daily transactions involve trading of the major currencies, which include the US Dollar, Japanese Yen, Euro, British Pound, Swiss Franc, Canadian Dollar and the Australian Dollar. The most often traded or 'liquid' currencies are those of countries with stable governments, respected central banks, and low inflation.

Unlike other financial markets, the Forex market has no physical location, no central exchange. It operates through an electronic network of banks, corporations and individuals trading one currency for another. This lack of a physical exchange enables the Forex market to operate on a 24-hour basis, moving from one time zone to the next, across each of the world’s major financial centres every day.

The objective of currency trading is to exchange one currency for another in the expectation that the market rate or price will change so that the currency you bought has increased its value relative to the one you sold. If you have bought a currency and the price appreciates in value, the trader must sell the currency back in order to close the position, and hopefully to realise the profit.