Currency trading which is also known as Fx and Forex trading is a process where one currency is exchanged for another in the hope of making money when the foreign exchange rates vary. The foreign exchange rates are continuously changing due to changes in economy, market news, national events or a knock on effect from changes in the stock market.
Let me explain this with a simple example. Imagine you exchanged hundred US dollars for British pounds. Let’s assume that according to the exchange rate on the day you do the currency trading you gave $100 to buy £65. After some time the currency exchange rate changes in your favor so you buy your dollar back again. Now with the new rate you get $103 for your £65. You just made $3 or 3% profit on your investment. Now think of the effect when you scale this process upwards. Instead of $100 if you have invested $10K you could be making $300 in a matter few hours if the currency exchange rates are in favor of you.
However should you invest huge amount of money and if the forex exchange rate changes against your favor then you will risk big losses. In order overcome this risk forex experts trade on margins so that they can control larger amounts with only a small investment. Currency traders do this kind of trading all of the time with the aim of increasing their funds through many small trades. In the $100 example, you might only have to hold $10 in your brokerage account to make the purchase although the amount is $100. The forex broker covers the rest on the assumption that the market is not likely to vary by more than 10% in a short time.