What is currency Trading?
Find out about currency trading, the simultaneous exchange of different currencies on the market. Learn more about the largest and most liquid financial market in the world.
What is forex trading?
Find out about forex, the simultaneous exchange of different currencies on the market. Learn more about the largest and most liquid financial market in the world.
What is currency trading?
Currency trading has soared in popularity this century amongst professional and non-professional traders alike. Before the arrival of the Contract for Difference (CFD) market in the late 1990s, currency trading was an asset class that was difficult for individuals to trade or invest.
Stock and share ownership had been growing throughout the latter 20th century, while ownership of bonds was possible via investment funds. However, currencies had traditionally been the realm of large institutions – unless you were changing up currency for a holiday abroad.
What we now call foreign exchange or currency trading is the interchange of one currency for another, and it is this exchange that separates currency trading from other markets.
When you trade currencies, you are anticipating that one currency will rise or fall relative to another one. Currency trading, therefore, is a “relative value” trade, by which we mean that you look for one currency to appreciate in value and for another currency to fall in value relative to the first.
So, when trading currencies, we need to decide which currency we expect to be rising in value, and which may depreciate in value – relative to one another.
Advantages of currency trading
There are three key advantages for trading using currency trading:
- It is wide-ranging, with opportunities to trade many different currencies against each other
- It can be fast-moving and offering opportunities for traders to benefit from impulse price movements
- An extremely liquid 24-hour market, open from Sunday – Friday
A brief history off foreign exchange
The history of the currency markets can be traced back to ancient Egypt and Greece, and even further back to Biblical times with money changers in the Holy Land. The Middle Ages saw currencies traded between international banks with the Medici family accounting book in the 15th Century. The Gold Standard Monetary System, the post-World War II Bretton Woods System, the Smithsonian Agreement and the Plaza Accord have all been stepping stones throughout the 19th and 20th centuries to the modern era of free-floating exchange rates that we now take for granted.
The modern currency trading markets and the major players
Today, the currency trading markets are the world’s largest traded asset class, with between $5-7 trillion of transactions each day of the trading week. The major players in these markets include
- Investment banks
- Commercial banks
- Central banks
- Multinational corporations
- Institutional brokers
Between these powerhouses sit individual, professional, and retail traders looking to make a profit.