Wednesday, 26 March 2014

Currency: Vital to Financial Trading

If you ever want to even have a hope of being successful at financial trading, you need to know why currency is so pivotal to market activity. So that’s why this week at the Academy of Financial Trading we’d explain just why currency is so vital to financial trading.

Currency is the system by which we receive goods and services. Essentially, the currency system has been around since the earliest days of civilisation and it works through one party giving money in exchange for a good or service. It’s the modern form of trading.

This is why money is so essential to modern life. That saying that ‘money makes the world go round,’ really is true. Every transaction on the planet involves exchanging money for a good or service. Without money you wouldn’t be able to live in the modern world.

So naturally it’s pivotal to market activity. This is because shares and stocks are given a monetary value and whether you make money or not depends on whether that share/stock rises or falls in monetary value.

Currency values play a huge part in this, and you need to know about it. Currency values concern how much a particular currency is worth in comparison to other world currencies. This is best explained by when you go on holiday to a foreign country. You exchange a certain amount of money for that country’s currency and the amount in that currency you receive back is calculated by how much it is worth in relation to the one you are trading.

Take the UK and the US for example. At the time of writing, the exchange rate is £1 GBP equals $1.65 USD. This means that if you exchanged £100 for USD, you would receive $165 in USD. Obviously, this means that the stronger a currency is the more power you have on the financial market, as you get more money back when you trade it for a weaker currency.

This is why currency and exchange rates in particular have so much value in financial trading. It’s possible to use them to make money and to maximise your options. If you’re trading in pounds but in the US market, the strong value of the pound in relation to the dollar gives you a certain amount of strength when trading.

At the Academy of Financial Trading we recognise that in order to be successful in financial trading you have to know the basics.  If you don’t how can you ever hope to grasp the more complicated aspects of financial trading and how can you ever hope to make a profit?

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