How does the foreign currency exchange market work?
Currencies are always traded in pairs - the US dollar against the Japanese
yen, or the English pound against the euro. Every transaction involves selling
one currency and buying another, so if an investor believes the euro will gain
against the dollar, he will sell dollars and buy euros.
The potential for profit exists because there is always movement between
currencies. Even small changes can result in substantial profits because of the
large amount of money involved in each transaction.
At the same time, it can be a relatively safe market for the individual
investor. There are safeguards built in to protect both the broker and the
investor and a number of software tools exist to minimize loss.
