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What is Convertible Currency?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 11 September 2016
  • Copyright Protected:
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    Conjecture Corporation
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Roughly one-fifth of the world's stock of gold - worth over $200 billion USD - is stored under the streets of London.  more...

September 30 ,  1949 :  The Berlin Air Lift ended.  more...

Convertible currency is essentially any type of currency that can be quickly purchased or sold without the need to obtain permission from some sort of central bank. The convertible currency may be used to obtain other forms of currency, or utilized to purchase gold. At one point, there were only a few currencies that were considered to be convertible. Presently, the majority of the different examples of currency around the globe are considered to be convertible and thus may be traded on a Forex market with ease or exchanged in private situations as local laws allow.

There are several reasons why an investor may wish to execute a purchase or a sale of convertible currency. The most common reason is to take advantage of current projections for upcoming trends that may impact the value of a given currency. For example, the value of currency issued by a given nation may be affected by changes in political regimes in an election year, or an overthrow of the central government. Investors holding currency for those countries would likely wish to sell before the demand for the currency decreases. Selling currency in this manner can help to minimize losses that could take place.

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At the same time, buying currency may also be the way to go. If projections indicate a favorable economical outlook for a given country, the convertible currency may begin to experience an upswing in the exchange rate when compared to another currency. This often creates an environment where an investor can get in on this period of prosperity in the early stages and realize a significant return by buying early and hanging on for the duration of the upswing.

Of course, part of the strategy in making money from buying and selling convertible currency is to know when to buy, how long to hold, and when to sell. Projecting when the relative value of a given currency will begin to level off or even fall is just as important as knowing how to spot an upcoming increase in value. Investors who engage in currency trading on a regular basis often develop a keen sense of how to balance buying and selling in order to achieve the highest degree of benefit from the action.

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