TRADING FOREX

Here is an even clearer way of showing this principle using the same example:

Let’s say that you changed your €500 into US dollars and got $700, but you did not spend any money at all and came back with $700. After the exchange rate changed from $1.40 to $1.30, instead of getting €500 back, you actually receive €538.5. You have gained €38.5 simply from holding your money in dollars while the exchange rate changed. This is essentially how we trade in the currency market. We buy a certain amount of a currency, hold onto it until the exchange rate fluctuates, then change it back once the exchange rate has fluctuated, making money in the process.