I believe you will see in the movie about Wall Street that many fund managers are from foreign exchange trading, so what exactly is foreign exchange trading? The answer is actually very simple, is to trade “money”.
All foreign exchange transactions are not purchases themselves, so this kind of transaction will confuse people’s understanding of the nature of foreign exchange transactions.
What is the essence of foreign exchange trading
Treating the purchase of currency as the purchase of shares in a specific country is a bit like buying the stock of a company. The price of currency directly reflects the market’s judgment on the current and future economic conditions of the country to which the currency belongs.
When you buy US dollars, it means that you have invested “one share” in the US economy. You are betting that the US economy will perform well in the future, and it will even get better over time. Once you sell those “shares” to the market, and the market at this time is as you expected, other investors will be willing to buy at a higher price, and you can profit from it.
The foreign exchange currency pairs we trade, generally speaking, the exchange rate of a country ’s currency and other countries ’currencies reflect the comparison of the economic conditions of the country and other countries. The strength of the comparison reflects the changes in exchange rates, such as For the U.S.-Japan currency pair, the strength of the US economic development is better than that of Japan. Then the exchange rate of the U.S.-Japan currency pair will rise, and on the contrary, it will fall. It is so simple.