It wasn’t until I started trading currency full time that I fully appreciated just how much movements in these markets can impact on our everyday lives. The most obvious is, of course, whenever we travel abroad and have to buy foreign currency. Regular travellers will probably be more aware of the fluctuations in the currency markets and the surge in visitors to the United States around Christmas (as a result of a weak dollar) showed just how sophisticated we have become. The exchange rate was almost 2 dollars to the pound which was in sharp contrast to Christmas 2005 when you would have been lucky to get 1.7 dollars for each pound. This may not sound much when exchanging a few hundred pounds but the difference is extraordinary if you were hoping to buy property or any other dollar asset (including American shares). For example a 200,000 dollar home in December 2005 would have cost £117,647 whereas the same one a year later would have cost £101,010, a difference of some £16,000 pounds. The same principle applies with any other currency whether in Europe or internationally.

When buying an overseas asset, there are, of course, specialist foreign exchange brokers with whom it is possible to either forward buy or sell currency, therefore removing the uncertainty and fluctuation in the value of the asset, by locking in a favourable rate. In essence a rate is agreed and then fixed for any period, sometimes up to 2 years, and the rate is normally confirmed by a 10% deposit. The balance is generally only required on the delivery date of the contract. Remember this is a contract and there are harsh penalties for those who fail to deliver the money on the required date. In this way exposure to volatility in the markets can be removed and it is a technique that is commonly used by those buying property, boats and other major assets in foreign currencies. In addition to these futures contracts, it is also possible to hedge against market fluctuations using currency options. Perhaps you already own an asset in a foreign currency which you are trying to sell, but it is taking some time. You consider that currency movements may be unfavourable for you in the next few months, so you hedge (or take out some insurance) using a currency option.

Access to the foreign exchange market by ordinary investors and consumers has been possible, in part, to its deregulation, but mainly due to the dramatic changes in technology. When I first started trading in futures 15 years ago, I had a screen and satellite data feed, but had to ring a broker for a price. By the time he had spoken to the broker on the floor of the exchange, the trading opportunity had usually gone. Today all that is required is a laptop and broadband connection. Data arrives in real time and trading is done in the click of a mouse. The disadvantage of such speed is that it is possible to make mistakes, as I have done when closing out the wrong contract!

Currency is a great market to trade as it is available 24 hours a day, wherever you are in the world, only closing from Friday night to Sunday evening. Even if you have no intention of trading, if you own an overseas asset or are thinking or buying one, you should at least have an idea of which way a particular currency is trending from a chart of the currency pair. These charts are widely available on the internet and with a little time and effort it should be apparent which way the market is likely to move. The currency markets are one of the most strongly trending of any financial market. Once a direction is established the move tends to last for some time, and will only change direction on some major news announcements or a fundamental shift in world economies.

For this reason it is critical to have an understanding of the currency and its likely direction before investing overseas – get it wrong and you could be caught on the wrong side for several months or even years!

Anna Coulling is a full time currency trader and investor, who specifically helps women to understand the financial markets. All the information on her web site is free. .For further information and examples please click on the following link : http://www.making-bread.co.uk

Source: www.isnare.com