Speculative investment is one of the most important factors of the international foreign exchange markets. This type of investment is undertaken by many different participants ranging from the largest financial institutions to individual investors.

Where the interbank market is often traded by high-earning dealers for tiny exchange rate movements intra-day, some of the big hedge funds may take up enormous leveraged positions with a longer term strategic target. The latter approach was seen in South East Asia in the second half of 1997.

The main advantage for investors in these markets is the very high degree of leverage that can be obtained. This allows for very rapid returns on investments, but also means that the risk level is higher than that normally associated with investment in markets that are not leveraged.

The risks involved mean that strict trading discipline should be adhered to and that the implications should be considered carefully whenever entering into a transaction of a commercial or speculative nature.

The application of technical analysis and a strict stop-loss policy are the cornerstones of successful trading as short term moves are often very technical in nature.