Investors may hold assets for months, years, or even decades, aiming to benefit from the appreciation of the asset’s value or regular income through dividends or interest payments. Trading, on the other hand, involves a shorter-term approach, with the goal of profiting from frequent buying and selling of assets. They often rely on technical analysis, studying charts and patterns to identify trading opportunities rather than fundamentals. Traders aim to capitalize on short-term price movements and may hold positions for a few seconds (scalping), minutes, hours (day trading), or days to weeks (swing trading).

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For instance, before the 2008 financial crisis, shorting the Japanese yen (JPY) and buying British pounds (GBP) was common because the interest rate differential was substantial. Companies doing business in foreign countries are at risk due to fluctuations in currency values when they buy or sell goods and services outside of their domestic market. Foreign exchange markets provide a way to hedge currency risk by fixing a rate at which the transaction will be completed. A trader can buy or sell currencies in the forward or swap markets in advance, which locks in an exchange rate. This strategy is sometimes referred to as a carry trade.

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An interesting aspect of world forex markets is that no physical buildings function as trading venues. Who Trades on It? Currency trading was very difficult for individual investors until it made its way onto the internet. Market participants are institutions, investment banks, commercial banks, and retail investors from around the world. Instead, it is a series of connected trading terminals and computer networks. Most currency traders were large multinational corporations, hedge funds, or high-net-worth individuals (HNWIs) because forex trading required a lot of capital.

Forex markets are the largest in terms of daily trading volume globally and therefore offer the most liquidity. This makes it easy to enter and exit a position in any major currency within a fraction of a second for a small spread in most market conditions. The broad time horizon and coverage offer traders opportunities to make profits or cover losses. The forex market is traded 24 hours a day, five and a half days a week-starting each day in Australia and ending in New York. The major forex market centers are Frankfurt, Hong Kong, London, New York, Paris, Singapore, Sydney, Tokyo, and Zurich.