How Currency Trading Works
Life on Earth has always revolved around the exchange of goods and services between its inhabitants. The barter system that existed during pre-historic times has evolved over time into an intricate balance between demand and supply that is serviced by furnishing of currency. With each region or country having its own dominant currency, there has been a need for some common denomination; a middle-ground of agreement of sorts. It is the key to continuing with trade relations and other international supply chain demands. In-fact, without foreign exchange, the global economy would simply freeze. This is also true in the case of individuals. All those who embark on international travel, first have to purchase the international currency, by paying for it with their home currency.
In the past, only a few, select entities were authorized to deal in foreign currency or forex. These entities often included transnational business enterprises, banking and non-banking financial institutions like hedge funds (for example). Individuals were only permitted, if there were significantly well endowed in the wealth department and had considerable clout. However, technological advances, especially the rise in computing power and the increasing spread of the internet, have since revolutionized the scenario completely. People looking to participate in currency trading, merely have to log on to the web and they would have real-time information on forex at their fingertips. Thus, the purchase and sale of currencies can now be completed in just a few clicks of the mouse, without stepping out of one’s home or office.
Daily fluctuations or variations in the currency values of the top five to eight currencies that are traded globally, do not vary beyond 1%. As a result, the online forex trading system operates on margins to generate its revenues. The forex market is also not bound by geographical boundaries and is characterized by rapid, simultaneous transactions. The availability of leverage and massive size of the market and the ease of making fast transactions has increased the popularity of the forex trading market over the regular equities and even the futures markets.