Before the availability of computers for the average person, and the deregulation of many world financial markets, the arena of forex trading or foreign currency exchange was open only to high level banking executives and senior traders in the inner workings of major banks. In a nutshell, the idea of foreign currency exchange is about betting on whether the value of a particular currency will rise or fall, relative to another currency. At all times, the trading system is based on one currency unit against one other currency unit of your choice. It can only be between two currencies for any trade.

Currency values are changing all the time, and can vary from one second to the next. This is due to the currencies being traded fluctuating in real-time, as demand and supply change, again based on world events. It may seem an odd situation, but the values of a currency are actually highly influenced by political movements, and sentiment in markets and from individuals. It is for this reason that currency trading is not for the faint hearted person, but at the same time, can be very rewarding if you know what you are doing.

Banks are a classic example of the use of currency exchange. When you deposit your money into the bank, it may only become available to you the next day. Even if it is instantly available, the bank is actually ‘playing' with your money while you sleep. The bank's traditional method of making money is based on them accepting deposits and then loaning the money out to borrowers. Naturally, it is assumed the borrowers will be paying back a higher interest rate for the privilege of loaning the money, than the bank will be paying the depositors for storing their money. The difference is the profit the bank makes for itself and the shareholders.

Now, an additional method for the bank to earn profit, is to invest the money on deposit on the currency exchanges as well. Naturally, the banks have very strict guidelines for investing your money and are thus very unlikely to lose any substantial amount, if at all. The rules are so tight, that for skilled traders who do nothing but specialize in investing in foreign exchange, the rates of success are naturally very high. For the average person like you and I, we need to study a little bit more to be able to play on a level playing field.

As I said earlier, where the deregulation of markets has allowed average people to invest, the banks have created trading platforms to allow us to do this. In some countries, there are dedicated trading houses that the banks use that are also available for average traders to join. Either way, you would need to join one of these trading houses or platforms to be able to trade. Essentially, you would learn how the system works and then either use software to help you select trades, or use the help of research or an advisor to help you trade. Naturally, as a precaution, I would advise you to never ever invest more than you can afford to lose. Whilst forex trading can be very lucrative, it can be very easy to lose of you have no idea of what you are doing.

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