How Forex Traders Enhance Global Currency Exchanges

Forex traders actually enhance global currency exchanges with their actions. Because they perform a non-stop reality check on market price, supply and demand.

Currency Exchanges and Forex Traders

Currency exchanges happen around the clock, as someone needs foreign currency at all times. The FX exchange facilitates these transactions by allowing buyers and sellers to find common ground and agree on market price. Each forex exchange rate undergoes scrutiny by so many different speculative traders as well as institutional traders who may be either hedgers or speculators. The end result is that the market becomes very liquid, and nobody can manipulate prices to their advantage. But also, the reality check that their trading does, helps bring various currencies to reasonable price levels, so that the economic situation of every country is fairly reflected in its currency. This kind of reality check is the best way to price one country’s currency, and the best way to economic prosperity, as defined by free market capitalism. This is also why countries abandoned the gold standard after WW2. Because pricing one’s currency based on gold reserves, doesn’t create flexibility, the currencies tend to be too strong. And when this happens, the country in question is unable to export anything that is both cheap to outsiders, and at the same time profitable to the producer. Abandoning the gold standard and adapting the free floating mechanism, has made the world much better. But traders, including small retail traders and amateurs, play their part, as they also provide liquidity through their winning and losing trades.

Currency Exchanges as Seen by Traders

Currency exchanges are seen as platforms to make money, by most speculative traders. Even though the risks are great for all traders, even millionaire traders risk losing all their trading capital. But those who are wise and slightly careful, end up profiting handsomely from their currency trading. Some even implement Carry trading strategies where the objective is to profit passively from interest rate differentials between two currency pairs. In this case the actual forex exchange rate is of no interest, but because it poses great risk it is hedged to the best way that it is possible. Carry traders use complicated techniques for hedging price movement risk. And because hedging is about correlated currency pairs, the strategies are always medium to long term oriented. Traders always find new innovative ways to profit from the global forex market, some of which are really amazing. Such techniques may involve advanced mathematical models for calculating arbitrage or risk-less trading conditions. Generally, markets do not help rich traders over poor ones, the fact that they are well financed doesn’t really mean anything. It is just as easy to lose millions as it is to lose few hundred dollars. In fact, rich traders tend to be more careless and silly with their trading, as opposed to not so rich but well focused Carry and arbitrage traders. Or as opposed to those who simply have to win, because they have no other sources of income. The forex market is where they all meet, rich and poor traders alike, and where the little guy can figure out a way to outsmart the super rich trader. The market is unforgiving to arrogant traders, and in the end only the humble and determined traders end up profiting, regardless of account size.