Getting latest data loading
X

Get trading opportunities to your inbox

There’s no charge for this.

If you enter your telephone number, we may call or message you occasionally with trading opportunities. You do not have to enter your phone number, and you can opt out at any time.
Home / Currency Trading

Currency Trading

Currency trading is buying and selling money, where traders purchase one type of currency using another. Profits can be made when one currency is under-priced relative to another, which can create arbitrage opportunities. More commonly, the currency market is used by speculators seeking a profit, where they believe that market forces will drive a particular currency up or down. It is also common for individuals, companies and other legal entities to use the currency markets for hedging purposes. Of course, perhaps the most common purpose for currency trades is trade; when one company, government or individual needs to buy goods and services from another country, they will need to swap their base currency for another in order to pay for the goods and services. To summarise, reason for currency trading include:

  • Speculation
  • Arbitrage
  • Hedging
  • Trade

Hedging

Hedging is a common purpose for currency trading. Hedging can be used by businesses and individuals to ‘offset’ a position in one currency with another, in order to negate the effect of currency movements. The ‘position’ in one currency can be indirect, meaning the exposure is only as a consequence of another situation. For example, let’s say a farmer in the UK is growing 1m Euros worth of wheat. It will take 6 months before he can harvest and sell the wheat to European countries. He has based his business plan and financial projections on the current exchange rate, and he is concerned that the value of the Euro will fall. The farmer’s business is growing wheat; the last thing he wants is currency exchange risk. So, he decides to ‘hedge’ his position. He is effectively (and indirectly) ‘long’ of 1m Euros worth of wheat, and ‘short’ the equivalent value of the pound. He goes into the currency trading markets, selling 1m Euros against the pound. This neutralises his currency position, which means that his net position is now zero. It doesn’t matter what the currency market does, the farmer’s exchange rate is now effectively ‘locked in’. Consider that the Euro falls in value, as the farmer feared; he will make money on his currency trade, and lose the equivalent on his wheat. He no longer has any currency risk.

Arbitrage

Arbitrage is the practice of seeking to make a profit from a mis-pricing of an asset in order to make a small, risk-free profit. Currency arbitrage can involve buying and selling between a number of currencies, where the price of one currency pair does not equate to the correct level when compared to the pairing of each to the third currency. In this case, the momentarily undervalued currency will be purchased by the currency trader, and the overvalued currency sold. This trade should push the currency prices back to the ‘correct’ levels (i.e. supply and demand forces). This is also known as ‘triangular arbitrage’.

Trade

Companies, governments and individuals often buy goods and services from other countries. To do this, they need to exchange their home currency for the foreign currency to pay the foreign supplier for goods and services. This is a significant driver of supply and demand that drives the currency trading markets.

Speculation

This is currency trading in its purest form. It refers to the practice of buying or selling one currency against another, with the intention of making a profit. For example, a currency trader might believe that the Bank of England is likely to raise interest rates, and decides to buy the Pound against the Dollar, in anticipation of a rise. All else being equal, a higher interest rate will usually result in a stronger currency. Let’s assume the Bank of England does indeed raise rates, and GBP rises by 3% as a result. The trader benefits from the rise, taking a healthy profit on his trade. Of course, a speculator would lose money if they are wrong on their judgement call.

The Currency Markets

Currency trading takes place on the foreign exchange market (also known as Forex, or FX market). FX has extremely high liquidity, which ensures the ease and speed of trades. As it is relatively easy to trade currency online, currency trading has become both widespread and straightforward. Currency has grown into the largest asset class in existence today, both in terms of geographical distribution and trading hours.

The value of a currency is expressed relative to another using exchange rates. As with any asset class, a currency becomes more valuable when demand for it is high and supply is low. Demand for a particular currency is dependent on that nation’s unemployment, GDP and business activity. Exchange rates are contingent on both economic and political factors. For instance, a country’s inflation rate, interest rate, industrial production, and monetary flows will impact the current exchange rate (also known as the spot rate). Currency trading for a living requires knowledge of both the internal economic situation of a country, and a macro level understanding of one economy relative to another.

Speculative demand also causes exchange rate fluctuations. Investors develop expectations for a currency’s value based on their expectation of interest rate movements. Often, currency traders will borrow money in a currency with a low interest rate in order to purchase another currency with a higher interest rate. This is called a carry trade. Retail currency trading is largely dependent on speculative demand, rather than the demand for a currency within a country (called transaction demand).

While currency trading is ubiquitous and all currencies may be traded, only a few pairs are commonly exchanged. These major currency pairs, or “majors,” make up 90% of trades in the foreign exchange market. Major currency pairs include:

  • EUR/USD (Euro to US dollar)
  • USD/JPY (US dollar to Japanese Yen)
  • GBP/USD (Pound sterling to US dollar)
  • USD/CHF (US dollar to Swiss Franc)
  • AUD/USD (Australian dollar to US dollar)
  • USD/CAD (US dollar to Canadian dollar)
  • NZD/USD (New Zealand dollar to US dollar)

These combinations are used to create the desired exchange. For instance, to trade EUR/CAD, an investor would need to trade EUR/USD then USD/CDN. It is possible that currency trading may require several transactions before the desired exchange is concluded. This is true especially when using less common currencies, which can only be exchanged via more prevalent currencies.  The majors are used because they are less volatile, and arguably more predictable.

Currency trading does not take place through a regulated exchange. There are neither limits to how much can be traded, nor upticks rules for short sales. Insider trading does not exist. While this may seem both confusing and risky, self-regulation provides effective control in the foreign exchange market. Currency trading is well established and carries a high risk to investment capital but also has the potential to be highly lucrative, especially when leverage is used.

At Accendo Markets, we offer an extensive range of currency trading markets, including major and minor currency pairs. Register for your daily Trading Opportunity emails today.

img
Latest Trading Opportunities

KAZ Minerals

View Monday 19 August 2019

Hargreaves Lansdown

View Monday 19 August 2019

Anglo American

View Monday 19 August 2019

NMC Health

View Monday 19 August 2019

Man Group

View Monday 19 August 2019

Get Regular Trading Opportunities in your Inbox

Don't miss out on a trading opportunity!

Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 77% of retail investor accounts lose money when spread betting and/or trading CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.
EXCELLENT

4.81 Average

156 Reviews

George

I have found Accendo staff very helpful,,and informed. I have traded with you for some years now and have no regrets. Keep up the good work!

Posted 9 months ago

Shaun D

since signing up for Accendo I have had two traders, Mark and Sam. I have found both of these to be very informative about how CFD's work and they have made it very easy for me. Since working with Sam (last four months) my trading knowledge has improved and I can make more informative decisions about which Company's to invest with. Keep up the good work Sam.

Posted 1 year ago

Anonymous

I am very happy with the service I get from Accendo Markets and in particular Amrit Panesar. He is very professional and pleasant to speak to and this counts for a lot.

Posted 1 year ago

Shreekant P

Its a good site for dealing stocks worldwide and having good staff.

Posted 1 year ago

Nick W

Krishan Appiah is one of the most dedicated / informative broker I have ever had.

Posted 1 year ago

Thomas I

Since I have been trading with Accendo Markets I have experienced much greater success than has been my experience with other trading companies mainly due to the help given by, what I consider to be my terminal with the trading floor, Mark, who has been most helpful in reminding me of the progress of my positions throughout the day and keeping me in touch with those positions so that I can more easily make successful trades when appropriate instead of missing out on opportunities through lack of attention. He draws my attention to the situations and enables me to make profitable trades. I am very happy with the situation at the moment and am enjoying the experience. Thomas Irving.

Posted 1 year ago

Kartik A

Accendo markets keep me connected with the market and its very well followed by Mr. Krishan Appiah ,which helps me to take certain decision on time.

Posted 1 year ago

Peter p

I have been trading with Accendo Markets and James Abbott my account manager for coming on 5 years now, James Abbott the senior trader of Accendo Markets provides me with up to minute information when I need it and find him very easy and professional to deal with. Whenever I need to trade or am not sure about anything James is always their to help with any queries I may have. The Accendo Platform I find very easy to use and navigate although it has been slightly changed over the years but definitely for the better. Personal when I do trade 90% of the time, I rather telephone call to place my trade dealings and if James is not there to take my call I find others at Accendo like Sam, Lee take my trades and are. All in all everyone at Accendo Markets are amazing to deal with and my relationship with Accendo is just as I like it. Peter Petrou

Posted 1 year ago

Mrs. J

"Our Trader, Aymen Azizi, has been nothing but attentive to our every need throughout our long relationship with him. No issue is too small, full explanations on all our questions."

Posted 1 year ago

Brian R

I have been with Accendo for a long time now, ten or twelve year's, probably more . As I told Sam (my trader) I thought that CFDs were better than sex . I stopped trading for a few years and only started back about a couple of months ago. But it is as if I had never been gone , so to speak. Sam has helped me every step of the way, at my age one forgets things. I have only praise for Accendo and as far as I am concerned the platform is the best . Now I am back trading at 71 years of age, I might even try sex again. Brian Robertson.

Posted 1 year ago

Jim W

I understand how to make a profit with CFDs. I am restricted by the range of companies I have knowledge of. Although, I am not sure that is a big problem. Tom Robertson is a very fine man.

Posted 2 years ago

Rebekah S

Well, I would not be trading without the help of my trader, Sam Alnakkash. He provided a really great overview of Accendo Markets, an insight into trading in general and how to get started in trading online. His advice, support and training has been fantastic all along the way, enabling me to start trading earlier than I would have done had I not had the support. He has also been very adept at understanding me as a client in order to help me achieve my trading goals. I still have a lot to learn and hope I will get there.

Posted 2 years ago

Nick z

I like the updates on shares I trade. Updates from Bloomberg and Reuters plus industry updates and breaking news. I've had Matt Grice and James Abbott and found both to be excellent. I would like to continue a personal service with James. He understands how and which stocks I trade.

Posted 2 years ago

Steve O

Excellent, knowledgable broker interaction and communication, coupled with very good research and analysis.

Posted 2 years ago

William P

Being new to direct trading I needed help and was given all the time and advice that I needed to feel fully able to make decisions on what I wanted to invest in. I asked for and got exactly the type of info I required provided by Tom Cook, who I would recommend to anyone looking for help.

Posted 2 years ago

Mr. W

I have been dealing with accendo for the past 8 years my broker Amrit I find him very helpful when he is there lol and had many offers to change but will not do it Bill Roberts

Posted 2 years ago

Zoran N

Very good all round service! Timely market information. (charts + trends coverage ) On the ball accounts managers ,quickly available and alert . Part of my success owed to my personal manager Mr Sam Springet , than you.

Posted 2 years ago

Mr Brian C

Easy to deal with.....

Posted 2 years ago

Muhammed S

Accendo markets are great for trading cfds and their research is second to none! Aymen manages my account is extremely helpful and always keeps me updated on market info. Thanks again

Posted 2 years ago

Mr Buta B

Always available, whenever I call I get straight through to someone that can and will help. The staff are very knowledgeable, helpful and easy to talk to.

Posted 2 years ago

Stephen B

Aymen Azizi keeps an eye on what is happening in the market and informs me with timely relevancy, email call, and txt.

Posted 2 years ago

.