The currency market, also known as the foreign exchange market, is one of the world’s biggest markets and is where traders who buy and sell currencies globally do their business.
Known universally as Forex, there are two main ways of participating in currency trading. A significant part of the market is taken up by currency traders who examine exchange rates between various currencies and then speculate on which way they are going to move. The process has similarities to the way traders speculate on stock prices, again looking to judge which way they are going to move.
The other part of the Forex system is where large multinational businesses, which frequently have many different countries where they carry out their business, need to pay staff, suppliers and other expenses in another currency. Forex trading allows this to be carried out efficiently.
Exchange rates constantly rise and fall and these fluctuations can be caused by general or specific global economic conditions or the actual flow of money around the world. Concerns about “insider information” can be allayed by understanding that the Forex system reacts to information and news that is released in public, meaning that theoretically everyone who needs to know about it should get it at the same time.
Experienced traders learn to judge which way the currency market may go and even small fluctuations in the rate of exchange between currencies can be enough for a trader to make a profit.
Sarah writes about currency trading platforms to help people make the right investment decisions.