Until the 1970's, and for the previous 100 years, the value of most
currencies was tied in some way to the value of gold. In 1944 this "gold
standard" was replaced by the Bretton Woods Agreement which valued the
United States dollar against gold, and all other currencies against the
US dollar. In 1975 that agreement fell apart and a system of floating
exchange rates was widely adopted, leading to fluctuations in currency
values in an open market-and laying the foundation for foreign exchange
speculation.
Today, trading in foreign currencies by speculators usually takes
place through a forex broker or dealer, who provides the trading
platform to transact forex trades. Such trades occur in currency pairs,
such as USD/JPY (United States Dollars/Japanese Yen). Note that two
currencies are always involved in a forex trade, with one being
purchased while the other is being sold.
The forex trader will generally hold the purchased currency (called a
position) for a period of time, intending to profit when the prices of
the two currencies change favorably. The transaction is completed, or
the position is closed, when the opposite currency is bought and the
other sold. Profit is calculated by the difference in the buying and
selling price.
Different brokers offer different services, and traders need to be
careful their broker is serving their best interests. Each broker
provides demonstration or practice accounts, where a new trader can play
with virtual money until they feel comfortable opening a real account.
Analysis can be completed and orders are placed online, at the trader's
request.