Currency Speculation



Currency Speculation

Answer # 1

Speculation of currency is the selling and buying of foreign currencies with the aim of earning profit on the changes and differences in exchange rates. This process is also termed as currency trading. People with a deep view in the currency markets and changing trends are able to speculate any future change in the exchange rates.

Methods of speculation adopted by the Firm's Leader

Speculate and achieve a positive result is based primarily on the knowledge of several technical aspects specific to currency trading.

Leverage

Except in exceptional circumstances, the exchange rate is generally known as small variations in Forex. They are of the order of 1%. In principle, if one intends to achieve appreciable profits in this market, we must invest money relatively consistent. Leverage overcomes this drawback. Using a leverage of 1: 100, one needs only 1000 dollars to invest in a contract of $ 100 000 and so on. Assuming for example that one can predict a rise in the euro against the dollar, you can buy euros and sell dollars (LeBaron, 2004).

When the exchange rate EUR / USD rises from $ 1.35 to $ 1.36, the speculator wins the difference is equal to $ 0.01 per dollar invested. In total, it receives more than 1 000 USD, which is the product of 100 000 USD $ 0.01. By cons, when the contract value goes down and $ 100 000 to less than 99,000 dollars, the speculator loses its entire investment since it was mooted that 1000 dollars.

Factors affecting the currency

The evolution of currency depends on economic factors including:

inflation

the situation of the trade balance,

interest rates set by central banks.

Inflation in one country leads to a gradual depreciation of its currency. The trade balance also influences the currency. It gives an indication of the value of ...