The currency market trading started in the 1970’s. Currencies that were historically tied to the price of gold, were allowed to float. Now the value of a currency is decided in the open free marketplace where banks, traders, corporates & governments buy & sell the currencies resulting in the ever changing currency exchange rates.

So instead of a dollar having a gold based value, it’s value is now determined by state of economy & the other currencies in the world. FOREX marketplace is a near perfect free trading market that free market ebthusiasts can think of. But over speculative trading is not good for the growth of forex marketplace. Almost anyone can invest in FOREX because it’s simply the exchanging one currency for another currency.

Free trading of foreign exgange is a major driving force for the new trends in global trade. Forex Marketplace provides Importers & Exporters an option to protect their reserves & investments against fluctuation of currency value. Of course, companies will need to hire skills in forex to protect their investments. And this creates good career opportunities for professionals with skills in forex market.

So how does this work? Let’s say that a tofu manufacturer in India buys soya 10000 tons/month from the United States Soya market. At $100/ton, he needs $ 1million every month. If USA market is going through inflationary trends, the value of the dollar will have downward trend in the coming months….if the price of 1 ton of Soya goes up to 110 dollars. Tthe Tofu manufacturer will need $1.1million /month for 10000 tons of soya. This means he has to raise the price of Tofu or go along with substantially lower profits or loose the business.

One way to protect the purchase value is to trade part of foreign exchange reserves for a more stable FOREX currency say Euros, a currency you believe will be more valuable or stable around the time of your purchases. For this example, let’s say one dollar is worth 1.6 Euros and remember this is an example only.

Next, let’s say your right and inflation does hit the US hard and the value of the dollar drops by 10%. So in our example, if you kept your savings in US dollars it would now be worth only 90% & you will need more money for purchasing the required quantity of Soya.
Can the forex market provide protection against this flucatation of the value of currencies?
The reason is that the FOREX trading markets will adjust the value of the dollar because of the inflation and raise the value of the Euro appropriately. So in this example, a 1 Million US dollars traded for 0.625 million Euros will now be worth $1.1 million dollars after the value of dollar drops in the forex market. The example shows protecting the buying of Soya against price forex fluctuations. Of course the company will need the services of an expert for managing the foreign currency reserves of the company. If not managed properly, this can also result in higher losses.

Almost anyone can invest in FOREX, and there are strategies for investors who look for long term and short term gains. Unlike the private markets where stocks, bonds and commodities are traded, FOREX is currency which belongs to the individual governments & countries. Currency manipulations by governments is not uncommon, where decisions they make can impact the value of their underlying currency.

It’s important to remember that currency dealers make their money through commissions. The Soya example used above, is very simplistic & has a number of risk factors and additional costs like trading costs.

Many people involved with FOREX make a lot of money & many loose noney also. But if you get training & hone your skills, learn the markets and trade smart, you can make a good fortune in the forex marketplace.

by Schanie Ken