Most of the trading that happens on the currency market is for a forex profit. The foreign exchange currency market is the largest financial market on the globe. It trades an average daily volume of $3.2 trillion. Compared to the New York Stock Exchange which only does $153 billion of trading volume a day, it shadows any other market.
Of the $3.2 trillion that is traded daily on the forex market, an estimated 80% of it is done purely for profit. A profit making motive may sound obvious to many people. Why else would anybody trade on this market other than a forex trading profit? In order to understand why this is a big deal, you have to understand the essence of why the market exists in the first place.
International Trade and Business
The fundamental reason the forex market exists is to facilitate international trade, business, and investing. The intent of the market is to give a platform for people who want to exchange currencies for end-use purposes.
Let me give you an example. An investor in the US wants start a factory in China. In order to do that, he needs to acquire Yuan, the Chinese currency. He has a group of American investors that are interested, but they all hold US dollars (USD). The investor goes on the currency market and exchanges his USD for Yuan. Now he is able to buy land, machines and hire labor and pay with the Chinese Yuan.
This is a classic example of why the currency market exists. In reality, only a fraction of the trading activity is for actual use of the currency. Most of is purely for forex profits and nothing more.
Pros and Cons of Speculation
Many people have a problem with this because speculation violates the principles for which the market was founded on. Some don’t have a problem with it, except for the fact that such a large proportion of the trading activity is done by speculators.
On the other end of the spectrum, many feel like speculators even out the market and make it efficient. The volume, they argue, allow the prices to become more efficient. It also allows currencies’ liquidity.
Forex Profit System
There are many ways that speculators make money on the forex market. The great majority of systems tend to use forex indicators that involve technical analysis, i.e. reading charts and analyzing price movements. Some use fundamental analysis and economic indicators like a nation’s GDP and retail sales reports. But even then, some kind of technical indicator is involved.
The world of making forex profits seems endless. There are an infinite number of ways to make money in this market. There are new forex trading strategies that are innovated constantly to speculate on this market. It wouldn’t surprise me if that estimated 80% speculation percentage isn’t on the rise.