Everyday, currencies are traded in an international foreign exchange
market,
otherwise known as the forex market, with the main marketplaces
(otherwise known as bourses) existing in the world's financial centes
New York, London, Tokyo, Frankfurt and Zurich. Historically, the only
way to participate was from the trading floor of one of these bourses,
but today, people can trade forex from anywhere through a secure
internet connection and a PC.
Today's traders operate in a global network, taking positions in
the market and making investment decisions based on either relative
value between two currencies, or a particular currency's actual price.
Currency value fluctuations are constantly renegotiated through trading
activity, and this activity, and the corresponding currency values are
also indicators of the levels of currency supply.
An example of market behaviour greater demand for the Euro might
indicate a weakening supply. Low supply and increased demand will drive
the price of the Euro up against other currencies like the dollar,
until the price better reflects what traders are prepared to pay when
short supply exists. Another way to look at this situation is this
higher demand means it will cost more dollars to buy the Euro, which
equates to a weakening of the dollar in comparison. Analysis of
situations such as in this example forms the basis for a trader's
investment decisions, and they will purchase or sell currency
accordingly.
This should be remembered, as while many see the foreign
exchange market as the vehicle for converting their home currency while
travelling abroad, many others choose to use the market to advance their
financial position and secure their future.
by Jay Moncliff
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