Nairobi — The global currency trading market is a multi-trillion-dollar business where world currencies are exchanged back and forth on a daily basis.

It is typically done through brokers and "market makers."

Traders can place trades through their brokers who will in turn place a corresponding trade on the market.

Currencies are traded by individual retail investors, financial institutions and corporations doing business.

Retail investors and banks trade to make profits and corporations usually trade in the normal course of the international business process.

Currency trades are priced in pairs.

For example, you may have seen a currency quote for a EUR/USD pair of 1.2131.

In this case, the base currency is the euro and the US dollar is the quote currency.

In all currency quote cases, the base currency is worth one unit, and the quoted currency is the amount of currency that one unit of the base currency can buy.

An investor makes money in forex trading by either an appreciation in the value of the quoted currency or by a decrease in value of the base currency.

Currency values can change for many reasons.

Sometimes they react to political and economic news, sometimes they are driven by speculators and sometimes they are driven by international business flows.

Imports and exports

If companies in the United States are importing large quantities of products made in Kenya, they will need to exchange their dollars for Kenya shillings to pay for the products.

When this is done in large quantity over a short period of time, it raises the demand for Kenya shillings and the value of the Kenya shillings versus the dollar increases.

This happens because dollars are being sold on the open market, while Kenya shillings are being bought.

In a single trading session, dealers can make an average of Ksh500,000 ($6,670) for banks while individual traders make around Ksh70,000 ($930), free of tax.

However, one has to have all information concerning major inter-country trade movements to make a profit.

"We read a lot of business news so as to know which position to take when trading. When we see that a certain inter-country business flow will lead to a depreciation of a certain currency, we sell it, and vice versa," said Gerald Ndung'u, a chief dealer at Invest Dealers Ltd.

Despite having a wide range of currencies to trade in, Mr Ndung'u says many traders prefer US dollars and Japanese yen for they are relatively stable.