Many expats are familiar with buying and selling currencies when they move between currencies. This is usually done via a bank or professional currency exchange company. The banks and the exchange companies make a profit buy purchasing low and selling higher or vice versa. In fact most currencies no longer charge a commision fee, as there profit is in the currency trading.
t is possible for the independent investor to buy and sell currencies electronically, without holding the physical currency. The exchange is done via a currency trading firm (see right). A currency trading firm allows you to buy and sell different currencies.
For example if you thought the strength of the Euro was going to go up against the British Pound, you could by EUR/GBP and sell EUR/GBP at a later date. This later date/time could be a couple of seconds, days, weeks or even years. The timescale and amount you buy/sell is up to the trader, and dependent on how much liquid cash is in your trading account. This liquid cash can be leveraged so a £1,000 trading account could be leveraged to give the buying power of £100,000. This means any gains are amplified, but also any losses are amplified as well.
Currency trading is also used as a hedge against currency exchange risk. If you have a business or earnings in one country (e.g. UK/USA), and live in another country (e.g. Spain), then you can hedge the exchange rate to ensure you are not negatively impacted by currency fluctuations.
To be profitable in trading currencies, knowledge of the currency markets is required. Traders usually depend on two types of analysis : Fundamental and Technical