The basics of trading in international currencies
The international currency market is the largest market in the world, where all other financial markets dwarf it.
The magnitude of this market will be realized when it learns that the volume of trading on the New York Stock Exchange, the largest stock exchange in the world, reaches 25 billion dollars a day while in the exchange of currencies is trading 2000 billion dollars a day !! .
This is more than enough to realize how big this market is.
You may wonder why currency trading is not so popular when compared to trading in equities and commodities that have started in their current form for more than a century.
The reason is the novelty of the Covenant.
After the Second World War and in 1947 was signed between the victors to the Bretton Woods Convention to arrange the situation of the global economy Among the terms of this agreement was the process of currency assessment against the US dollar as an alternative to gold as a way to help build what was destroyed by the war in Europe, One of the most important results of this decision is the stability of currency prices and the minimum fluctuation against the dollar and against each other.
There was no room for currency trading, which was mainly based on the use of currency fluctuations against the dollar.
But in 1970, as a result of difficult economic conditions in the United States, President Richard Nixon decided on his famous decision to disengage between the US dollar and the currencies of Europe and Japan, which led to the impact of the currencies of Europe and Japan this decision severely affected, becoming swinging up and down under the influence of the policy and economy of each country Of these countries and under the influence of the strength or weakness of the US dollar and the American economy, and from this date the market grew simultaneously in the United States, Europe, Japan and other countries.
But due to the recentity of this market on the one hand and the weakness of the means of communication on the other it was impossible for non-banks and major financial institutions to trade this huge market.
But with the rapid and rapid development of the means of communication and the rapid spread of the use of the computer, and with the revolution of the Internet has become enormous individuals and no more than a short period of currency trading and take advantage of the opportunities that do not end to achieve fantastic profits and very quickly.
As you see, the currency market is the most modern market among the rest of the financial markets, making it vague and unknown to most people who have been accustomed to trading stocks and commodities for decades, as well as people who are not already dealing with any of the financial markets.
Why do people buy currencies from other countries?
When a trader from Egypt, for example, buys goods from Japan, he must pay the goods in a currency accepted by the Japanese seller. The Japanese seller will probably not accept the price of his goods in the Egyptian pound, but he wants to receive the price of his goods either in the yen currency or In a currency acceptable in most countries of the world such as the US dollar, the euro or the pound sterling.
Here, the Egyptian trader has only to replace the pounds he buys to buy a dollar to send to the Japanese seller for the goods he bought from him.
So the Egyptian trader should buy the dollar and pay an Egyptian pound interview.
Also, if an Arab wanted to travel to a European country for the purpose of tourism, for example, he would have to buy in his local currency the single European currency (Euro) so that he could pay the goods and services he buys in the European countries he visits.
For example, if an Arab person wants to invest in Britain by buying a property or shares, to pay the value of these investments, he must pay the value of the pound sterling or in a currency accepted by the English seller, for example, the dollar, if he replaces his local currency and buys a pound sterling.
These are the main reasons why a person buys another country’s currency.
Trade, Investment and Travel.
This applies to countries as well as to individuals. States exchange goods and services for purchase and sale so that a country can pay the value of what it imports. It must be paid in the currency of that country or in a currency accepted by that country, so countries must always buy the currencies of other countries.
As for investments, countries and financial institutions that invest in a country pay the value of these investments in the currencies of the countries they invest in or in currencies that accept them such as the dollar, the euro and the pound.
Do you know now why the currency market is the largest in the world?
This is because millions of trade, investment and travel occur every day and everywhere in the world. If there is a constant need to buy and sell currencies every day and all over the world, every day at least $ 2 trillion is traded. !!
This huge figure represents the value of currencies that are sold and bought every day around the world.
As we have mentioned, the main reason why people and countries buy and sell currencies is trade, investment and travel operations between individuals and countries.
The purpose of obtaining the currency of another State in all previous cases is to use this currency in the exchange of goods and services between individuals and States.
People buy another currency that is not loved by it .. !!
But because it enables them to obtain goods from another country, that is, people buy and sell currencies as a tool for exchange.
But how do we buy a currency?
By paying the equivalent of another currency ..
You have to go to one of the exchange shops and exchange your local currency for another currency, for example, US $.
You are thus selling your currency and buying the US Dollar.
Of course, in order to buy something, you must know its price. Also when you want to buy a currency, you must know its price in another currency