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Currency Trading
Trade the Global Economy
Why has the euro become so expensive relative to the dollar? How do traders profit in the currency market?
Learn how currencies work and how you too can profit
from movements in the markets.
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Why Currency Rates Move

Why do Prices Change in the Foreign Exchange Market?
Money is a medium of exchange and a standard of value-in other words, a way to quantify how much something is worth. Foreign exchange simply means exchanging the currency of one country for an equivalent amount of the currency of another. Foreign exchange rates are not static, but change dynamically-sometimes many times within a single minute.

Why does it take more dollars to buy a euro this week than it did last week? Why would it cost you more today to buy a cup of coffee in another country than it did before, even though the price has remained the same there? The answer has to do with the value of a country's currency relative to the price of another currency.

What Determines the Rate or Value of a Currency?
Currencies, just like any other commodity that can be bought or sold, are subject to the laws of supply and demand. When more people want a particular currency, the cost of the currency in terms of other currencies will go up. When demand decreases or people do not want to hold a country's currency, the value will go down.

International Trade and Investment
One factor that directly affects demand for a currency is international trade. For instance, if I buy a Japanese car in the US, I give dollars to my dealer, who gave dollars to his distributor, and so on. But before the profits are banked by the carmaker in Japan, they are converted into Yen. There is a surge of buying of Japanese cars this month, the result is going to be increased demand for Yen-which will in turn cause an appreciation in the Yen's value.

An increase in international investment into Japan would have the same effect, since more money is being converted into Yen to purchase Japanese assets.

Profit by Trading Currencies
Currency traders can buy and sell currencies, similar to how stock traders buy and sell stocks, to profit from moves like the ones in the Yen and the New Zealand dollar graphs on this page. Lean More.

Analyzing Currencies Like Stocks
What three years of high interest rates did for the New Zealand dollar. View the chart below. Enlarge Chart View
When deciding to invest, international investors monitor the health of an economy similar to the way that stock traders analyze the companies they wish to invest in. If a country's economic outlook improves, there will be a surge of interest and international investors will move money into the economy and thus drive up the value of its currency. Because of this, currency traders pay close attention to indicators that follow the health of an economy.

Significant indicators that investors and traders watch include GDP, interest rates, and the employment rate. A country's political outlook will also affect how attractive it is to investors.

Currency traders monitor all of these elements and form a big-picture understanding of an economy so that they can understand the value of its currency. To learn more about events that currency traders watch closely, click the links below!

Interest Rates
Unemployment Rate
Geopolitical Events