The Life of a Currency Trader
Currency traders, also known as foreign exchange, Forex or FX traders, are people who make money trading currencies. You can work as a currency trader part-time or full-time. Currency traders primarily engage in speculative trading--i.e., they buy or sell currencies trying to make a profit from foreign exchange rate movements. FX traders can also trade currencies for risk-management purposes or to facilitate international trade.
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History
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Modern-day foreign exchange trading started in the 1970s when the floating foreign exchange system emerged. The exchange rates started to be determined by supply and demand factors, and central banks largely stopped interfering in the currencies market. Progress in telecommunications technology, especially the invention of the broadband Internet, greatly improved the ease and speed of executing foreign exchange transactions. Now virtually any one with a computer and Internet access can trade currencies.
Employers
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Foreign exchange traders are either self-employed, trading from their own account, or work for large financial institutions like investment or commercial banks, hedge funds, or FX divisions of multinational companies (facilitating money flows between the countries the multinational company in question has business in).
Self-employed currency traders trade primarily with their own money, whereas formally employed traders use funds made available to them by the institutions they work for.
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Compensation
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Financial compensation of currency traders varies a lot. Self-employed traders often have another full-time job and trade currencies only occasionally. On the other hand, traders working in investment banks or hedge funds earn considerable amounts of money in salaries and bonuses.
Celebrities
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Currency traders sometimes become famous. Probably the most widely known FX trader is George Soros. He is known for his leading role in the 1992 speculative attack on the Bank of England, which drove the British pound out of the European Exchange Rate Mechanism (a system that aimed to reduce exchange rate volatility and forced many of the European central banks to hold the value of their currencies against that of their neighbors). Mr. Soros reportedly made a $1 billion profit on betting against the pound.
Social Position
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Currency traders, especially those that trade for speculative purposes, are often blamed for foreign exchange rate volatility. Sometimes they are perceived by the public to be greedy and predatory, exacerbating the position of countries experiencing financial crisis (e.g., Greece in May 2010 and the speculative attack on the euro). At the same time, speculative currency traders increase market liquidity, making it easier for tourists, exporters, importers and investors to exchange currency.
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References
- Photo Credit exchange fluctuations image by Raimundas from Fotolia.com
