Exchange rates between currencies can be negative
What are foreign currencies?
Private individuals make up only a small part of foreign exchange trading, mostly they bet on exchange rate gains between currencies with foreign currency accounts. WeltSparen also has foreign currency accounts with attractive interest rates in US dollars and Norwegian kroner. The same applies here: the return depends heavily on the price development. With a positive price development, investors can look forward to a high return plus interest. If the exchange rate develops negatively, the exchange rate losses can exceed the interest rate.
Companies in particular exchange currencies in order to be able to buy products abroad or to convert the proceeds made abroad back into their local currency. In contrast to stock trading, there is no central office for currency trading or foreign exchange transactions like the Deutsche Börse in Frankfurt. Forex trading is more precisely composed of a loose network of banks and brokers that trade with each other. Banks also conduct foreign exchange transactions with one another. One then speaks of interbank trading. In addition to foreign exchange, such transactions can also include precious metals, derivatives, stocks or securities. Due to the exchange rate differences between the individual currencies, buying and then reselling a specific currency enables a possible return, as in the example with Mr. Schmidt.
The most commonly traded currencies include pound sterling (GBP), Japanese yen (JPY), US dollars (USD), Swiss francs (CHF), as well as the Australian dollar and the euro. This results in six so-called currency pairs for daily trading in foreign exchange trading, these are: GBP-USD, USD-CHF, USD-JPY, USD-CAD, AUD-USD and EUR-USD. Volatility is generally higher for these currencies. It is noticeable that all currencies are based on the US dollar, the world's leading currency.
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