4x Currency Trading – The Skinny

One of the fastest growing segments in the market is 4x currency trading. The 4x is a unique market because of its trading volume and liquidity.  It is estimated that close to $4 trillion worth of currencies are traded daily.  4x currency trading is a high risk venture.  This partly because it involves the use of leverage.  Only a small deposit is required to start.  Most of the funds are borrowed from the financial institution holding the account.  This can lead to multipied profits as well as loses depending on the trade outcome.

The objective of the trader is to buy low and sell high just as it is in other markets.  Profits are made on the spread between the two prices. However, if prices are expected to fall on the currency the trader can easily sell the currency with the intention of buying it back when the price drops, to cover the position.  The profit is the spread between the amount it was sold for and the price at which it was later purchased. Currencies trade in pairs.  The most common pairs are the USD/EUR(the dollar and the euro), USD/JPY(the dollar and the Japanese yen), GBP/USD(the British pound and the dollar) and USD/CHF(the dollar and the Swiss franc).  Over 80% of all transactions involve the dollar.  The first currency in the pair is called the base currency.  This is the one that will be bought or sold.  It will be bought or sold using the second currency called the quote.

There are many participants in the the 4x currency trading market.  Those in the top level of the market are those who trade the highest volume.  These traders are the largest investment banking firms in the world.  They are known as the inter-bank market.  They typically have the advantage of access to the best prices in the market.  All prices for the same currency are not the same.  They will typically  vary by only a small amount though.  The inter-bank circle trade for their customers but the majority of their activity is in trading for themselves.  They make up more than 50% of the trading activity in the market.

Central banks like the Federal Reserve also participate in the 4x currency trading markets.  They use the market to try to control inflation, interest rates and money supply in their own countries in an attempt to maintain stability. Hedge funds are a rapidly growing segment of the market.  These are funds with a wider spectrum a trading guidelines than mutual funds.  They can buy and sell short and engage in a riskier style of trading than other funds.  It is projected that over 70% of the trades in this market are made for speculative purposes.

Many things may affect price movements of a specific currency.  A country’s economic policies can not only affect their currency prices but also those of their trading partners.  Budget surpluses and deficits will affect prices. A nation’s productivity and employment level will cause changes in currency prices.  Inflation and inflation expections will move prices.

The overall environment of the market place is challenging.  Trading can be done 24 hours a day somewhere in the world.  With the large amounts of money traded daily traders need nerves of steel.

In the final analysis, 4x currency trading is a complex and competitive undertaking.  In order to profit in this market you must be well educated and agile.

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