Business Overview

If you've ever traveled outside the country, you know exchange rates can kill you, but only if the foreign currency is worth more than your home country's currency. For example, if $1 will only buy £0.70, then you're effectively "trading down," assuming costs for goods and services are relatively equal in both countries.

But, you can take advantage of these same exchange rates, and make a profit, if you own a currency trading business. Foreign exchange trading involves buying and selling foreign currency to make money off an international foreign exchange market. Since the value of the world's currencies are constantly changing, the purpose of the business is to time the buying and selling of currencies, trading one against another, so that the company profits from currency swings with minimal losses (called "drawdown").

Who is this business right for?

This business is ideal for individuals who love high-risk businesses. You must be willing to work long hours, be good with numbers, and be willing to learn about and understand various trading algorithms. You should also be passionate about world economies.

What happens during a typical day at a currency trading business?

A currency trading business starts early. Traders start trading currencies as soon as a market opens. The FOREX market technically does not close, since it is global. However, markets in one part of the world do close. It's just that, when they do, another market opens for business. So, currency trading companies can theoretically work 24/7.

The day starts with a basic analysis of the markets, which includes current news stories, trends in the market, and an analysis of the company's own capital and trading positions. Any open positions are checked and any closed positions are accounted for.

The company's trading managers and representatives set their initial buy-in prices and stop-losses. They also check and monitor their margin or leverage. Leverage is often used in currency trading because currency price fluctuations are generally small. Leverage of 50:1 or 100:1 is not uncommon. This means a trader can control or trade $100 for every $1 of the company's own capital.

What is the target market?

If you are running a currency trading business for yourself, you have no customers. If you grow into a broker or market-maker, your customers are other traders and sometimes other brokers.

How does a currency trading business make money?

Currency trading businesses make money from the rise in currencies they invest in. Specifically, traders hope that the price of the currency they just bought will rise relative to the one they just sold. If you are a broker, you charge other traders a fixed or variable spread commission for trading. Some companies act as "pass through" entities for large market-makers, and only charge a fraction of a pip commission so that their traders can pay a thin spread that is only usually offered to very large or institutional investors.

What is the growth potential for a currency trading business?

Growth potential is unlimited. A currency trading company can be as small as one person or it can grow into a broker or market-maker, offering trading services to other people.