What is currency trading?

If money is a facilitator of trade, can money itself be traded as a commodity? That is what currency trading is all about.Now any currency trader will know right off the bat that I can’t do justice to the complexity of that subject in a 500-word article, when it takes a whole course of study to become a currency trader.

Nevertheless this article is just to explain some of the basics of the trade since I’ve been asked by a number of people to explain this, so here goes…The job of a currency trader is to hedge one country’s currency against the currencies of other countries. Currency day traders don’t do long term hedging but hourly or on the moment trading.

Let me give a basic example using numbers. Hint: if you hate numbers you can’t be a currency trader because it is a game of numbers.  Let’s start at the forex (foreign exchange) counter of your local bank.If you are travelling to the US, you can go and buy dollars at your local bank. Based on the current price of the dollar, they will sell you the dollar and charge you a service fee or commission. That is how the bank or bureaux de change make their money from the sale of currency.

A currency trader however, makes her money by jumping from one currency to another according to the fluctuating price. Now time for numbers: If she has P1000, and she finds that the price of the dollar is say P7,00; she can buy US$142,86. An hour later she sees that the price of the dollar has gone up to P8,00 she can sell her dollars back to pula and she will have P1142,88. This means she has made a profit within the hour of P142,88 because she started with only P1000.

Now she finds out that the price of the Euro is P10. She keeps her profit aside and only buys P1000-worth of Euros and gets €100. An hour later she finds that the price of the Euro has gone up to P11. She sells her Euros and gets back P1100. She has made a profit of P100. This goes on the whole day with her watching currencies and trading.

This of course is a high tech profession based on complex software programs connected to the currency trading systems of the world. To be a currency trader you will have to be trained thoroughly on a lot of factors that affect currency fluctuations, as well as the technology that brings you the information.

If you don’t want to be a currency trader yourself but want to benefit from currency fluctuations, you can give your money to a currency trading company that will play the game for you.I am certain they will make you sign all sorts of disclaimers because there are no guarantees in these games.

Your job is to check the reputation of the company to which you give your money, but you must always understand that the ‘bug’ stops with you.
Namasté. Your comments and suggestions are always welcome at This email address is being protected from spambots. You need JavaScript enabled to view it.

Last modified on Wednesday, 31 July 2013 16:21

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