Currency exchange

Often, while traveling from one country to another, we need to trade currencies, because the currency of one country is not always acceptable in another country, so the traveler is forced to convert his local currency to the currency of another country, in addition to the presence of other cases of economic transactions involving the idea of ​​trading. 
So what exactly is currency trading? This is what we will touch on in this article.

What is currency trading

Currency trading is a legal trade in exchanging one currency for another, and paper and metal currencies are usually exchanged through banks, and there are many different companies and banking institutions that manage such transactions, that is, through which currencies can be converted, and you can find them in several places, It may be a small company existing in itself or it may be located inside airports, or it may be a large international bank that provides currency exchange services in its exchange centers.

In addition, you can find currency trading services through online companies. These companies may be a bank or financial institution that provides part of their services over the Internet. As for the profits of currency trading companies, it is either through a simple adjustment of the exchange rate or through Imposing some fees or both, and it must be said that sometimes currencies are exchanged more efficiently over the Internet.

Method of currency trading

As mentioned earlier, currency trading companies allow you to exchange one country's currency for another by conducting buying and selling transactions, for example if you want to exchange the US dollar for Australian dollars, you will bring the US dollars or bank card to the currency trading company and you will buy an amount in Australian dollars, and that amount depends. On the global spot exchange rate, which is a variable value determined by a set of economic factors.

In order to ensure the achievement of profits for the currency exchange center, the bank will adjust the price by a percentage. If we assume that the exchange rate of the US dollar against the Australian dollar is 1.2500 for the day, that is, for every US dollar you can buy 1.25 Australian dollars, in order to achieve some profits from that transaction, The currency exchange store will adjust that rate to 1.20 instead of 1.25, which means that you can buy 1.20 Australian dollars for one dollar, and the bank fee in that case will be 5 cents per dollar.

Airports are among the popular places for currency exchange, where you can buy the currency of the destination country directly before travel, or in return, you can exchange any excess money in your local currency upon return, and it is worth noting that currency exchange rates at airports are greater than those in banks.1

What is the foreign exchange market

The Foreign Exchange Market, also known as forex, is a global market that determines the exchange and circulation of currencies around the world. It is the largest financial market in the world with a daily trading volume of $ 5 trillion, while daily trading volume The New York Stock Exchange, for example, has $ 22.4 billion and is the largest stock exchange market in the United States of America.

The foreign exchange market (currency trading markets) operates 24 hours a day, 5 days a week and stops working on the two holidays, unlike stock trading markets that stop working at the end of each day.2

The foreign exchange market is a global electronic network, meaning it has no physical location or location, through which traders, brokers, and merchants buy and sell currencies, and what determines the differences in exchange rates is supply and demand, which in turn determines the profits of traders.

There are two levels of the foreign exchange market, the first is the interbank market, meaning when major banks exchange currencies between each other, and the second level is the over-the-counter market, in which currencies are traded between companies, traders and individuals.3

The exchange rate and its types

The exchange rate determines the relationship between the most important currencies in the world and the value of each country's currency against the currency of another country or economic region. There are several types of exchange rate, namely:

  • Floating exchange rate : It is a price that rises and falls according to the changes that occur in the foreign exchange market, and the government or the central bank does not interfere in determining it. 
  • Banned currencies: Some countries have banned the circulation of their currency outside their borders, and therefore the value of that currency is determined by the government.
  • Fixed exchange rate: when the country pegs its currency to the currency of another country, as when the Hong Kong dollar is pegged to the US dollar in a range between 7.75 and 7.85.2, and as a result, this means that the value of the Hong Kong dollar against the US dollar will remain within that range.
  • The spot exchange rate and the forward exchange rate: we mean the spot exchange rate, i.e. its current value in the market, but the exchange rate can have a forward value, and this depends on expectations of a currency rising or falling against its spot price according to the expected currency circulation in the coming period, for example if it is Traders' expectations say that the euro zone will ease its monetary policy against the United States, then traders or traders can buy dollars against the euro, which will lead to the depreciation of the euro.4

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