Spot Currency Trading
Like the 'spot' market for oil and other energy based commodities, currencies also have a current or 'spot' market, usually known as FOREX . Currencies are the most 'liquid' of all items traded; even more so than stocks and precious metals. There are some slight differences in currency rates in various world trading centers, such as London, Hong Kong, New York, etc.; and persons who are heavily involved in daily currency trading must keep abreast of these rates which constantly change by fractions of percentage points during the course of daily trading sessions.Professional currency traders are involved in very large trading amounts, usually on a 'margin' basis where only 1% of the amount being traded is the trader's actual capital. Various internal and external factors which can influence currency rates, such as bank interest rates, political factors, and even natural occurrences such as earthquakes, typhoons of other large storms, can have a serious influence on economic considerations which influence currency rates. One of the types of trading in currencies which can be greatly influenced by these factors is what is know as 'arbitrage trading' where weaknesses and strengths of different regions or countries can have effects on profits or losses accrued in trading one currency against another.
A successful arbitrage currency trader knows how to trade one currency against others in order to take advantage of small differences in conversions rates which enable him to make a profit on the 'leader' currency. An example of this is when a trader is involved in arbitraging U.S. Dollars against the Pound Sterling, Swiss Franc, and the Euro. During the course of the trading session, the arbitrager is constantly buying and selling one currency against others in order to take advantage of minute changes in rates among the currencies traded. One currency is used as the "leader currency", usually depending on where the trader is located, or which particular currency he uses for this purpose. By the end of the trading day the arbitrager will know whether a profit was made or lost, depending on how many purchases and sales were made; as well as factors occurring during the day that effect the currency rates.
As this kind of trading is much more volatile than trading on a contract basis, it should be left to the experienced trader and is not for the 'faint of heart'. The use of high speed computers, which enable to trader to keep abreast of several markets at once, and make rapid calculations at the same time, have been influential in this kind of trading. Many arbitrage companies provide trading services to private speculators and investors; and usually a certain amount of funds are required to open a trading account, as well as very high credit ratings in order to be able to work with these professionals..
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