Traders

Forex: Trading Deal

Traders in the foreign exchange market make thousands of trades daily, buying and selling currencies while exchanging market information. The $1.2 trillion that is traded everyday may be used for varied purposes:

"Yoshi, it’s Maria in New York. May I have a price on twenty cable."
"Sure. One seventy-five, twenty-thirty."
"Mine twenty."
"All right. At 1.7530, I sell you twenty million pounds."
"Done."
"What do you think about the Japanese yen? It’s up 100 pips."
"I saw that. A few German banks have been buying steadily all day…."

* For the import and export needs of companies and individuals
* For direct foreign investment
* To profit from the short-term fluctuations in exchange rates
* To manage existing positions or
* To purchase foreign financial instruments

In the volatile FX market, traders constantly try to predict the behavior of other market participants. If they correctly anticipate their opponents’ strategies, they can act first and beat the competition.

Traders make money by purchasing currency and selling it later at a higher price, or, anticipating the market is heading down, selling at a high price and buying back at a lower price later.

Trader purchases a lot of currency = long on the currency (e.g. long dollar, long yen)
Trader sells a lot of a currency = short on the currency (e.g. short sterling)

To predict the movements of currencies, traders often try to determine whether the currency’s price reflects its fundamental value in terms of current economic conditions. Examining inflation, interest rates, and the relative strength of the country’s economy helps them make a determination.

Currency underpriced = price will go up
Currency overpriced = price will go down