Thousands of investors across the globe have taken up the profession of currency trading. Hundreds of countries have very different currencies and thus there has to be an exchange rate between them if they want to do business with one another.
The first quarter of 2018 saw record high currency trading volumes. While currency trading volumes have steadily been on the rise over time, there are still many questions to be answered about this new record and some background to fully understand the impact on the rest of the world:
What Is Currency Trading?
Currency is traded on what is known as a Forex Market. This is a market where international currencies are able to be traded twenty four hours per day. Currency traders trade based on tiny price discrepancies between currencies. The goal is to acquire a particular currency when its value is low and exchange it back when its value is higher. This takes years of practice and research to do effectively and as a career so newcomers should be cautious to put too much skin in the game up front.
What Is Driving These High Volumes?
Currency is traded in much higher volumes when there is volatility in the market. This is because things are changing so quickly, different countries don’t have time to react appropriately and thus their currency value goes down. One of the biggest market swings was in February of 2018, smack dab in the middle of first quarter trading. It is estimated that more than $1.84 trillion was traded per day in the first half of this year.
How Does The Value Of Currency Affect Trade Markets?
There are no hard and fast rules about the relationship between currency value and trade but a few patterns have been noticed over time. Typically, a country with a strong currency value tend to import far more goods because it is far cheaper to do so. The only problem to this is that the number of exports in turn go down. Conversely, a country with a weaker currency will attempt to export as much as possible and import only what is absolutely necessary.
What Does This Mean Going Forward?
Q2 ended in June, and only time will tell to see if the second quarter of the year has maintained this trend. Analysts are working to determine which patterns have emerged since its closing.