Ever wonder how banks make so much money? Who pays for the glass, chrome and marble facades of their multi story office blocks in the best part of town?
Why you do. By the interest rates that you pay, by the service charges you pay, and by the opportunities to earn money that you so quickly surrendered to them, by thinking that banks has the sole rights to deal in foreign exchange.
Not any more they donâ€™t. And since legislation introduced a few years ago more and more companies and individuals are trying their hand at foreign exchange trading and some are making some tidy profits. And not only have that depriving the banks of earning even more money. How pleasant.
So how does the foreign exchange trading operate, and more importantly, how is it possible to profit from it?
Foreign exchange dealings, in contrast to the worldâ€™s stock markets, are transacted out with the constraints of a central physical exchange. Currency is bought and sold via the common telephone and increasingly more online. The market is expanding to tremendous proportions, with estimates of between $1.5-$2 trillion being bought and sold every day. All around the World, and round the clock, someone, somewhere is buying and selling some currency. To give you some idea of volume, if estimates of turnovers are even remotely accurate, by the time the average person has finished reading the article, $5,000,000 will have changed hands.
Dealers love the cut and thrust of the high volume that foreign exchange trading generates. Throughout the internet, transactions can be executed quickly and costs are low,
Dealers have to estimate whether certain currencies will increase or decrease in value, against other currencies. And they buy and sell accordingly.
Profits are earned by calculating the fluctuations that will occur over a period of time in currencies. For instance, now the dollar is weak against all currencies. Many experts predict that the dollar will continue to fall, other say that it will stabilize or even begin to rise. Many spot dealers will buy and sell currency within the space of an hour, a day, a week of even a month. Obviously the more capital that a dealer has to work with; the longer they can be exposed. Many an aspiring dealer has been squeezed out by being undercapitalized and not realizing the profits they had hoped to earn.