There has been little written about off-exchange foreign currency speculation and whether this is investing, harmless gambling or an outright fraud. Everyone is familiar with currency trading where an institution or individual with a large sum of money buys a large block of currency hoping that the price of the currency will go up, much in the same way when an individual buys stock. In the same vein, one can short a currency by selling a block of currency hoping to buy the currency at a lower price to cover the sale, in effect short selling the currency.

However, currency trading is only for large investors because it takes hundreds of thousands of dollars to play this type of game.

To permit small individual investors to partake in currency trading, "off-exchange currency brokerages" appeared by allowing these investors the opportunity to speculate in currency on margin using small amounts of money.

These off-exchange currency brokerages have also now surfaced on the net allowing investors to trade on-line.

Essentially the trading works like this. An investor promises (in effect gives the brokerage an IOU) to buy a foreign currency, say a block of 100,000 euros. The investors places US dollars in his account his account as a guarantee for his IOU. The investor hopes to make money by a change in the exchange rate. With these type of net brokerages, the investor knows that the money is not actually being used to buy currency in the open market. The investor is buying the currency from the brokerage and when the investor sells the currency to get back his IOU, he is selling to the brokerage. Since the brokerage is both buyer and seller, the difference between the bid price ( the price at which the brokerage is willing to buy the currency) and the ask price (the price the brokerage is willing to sell the currency) is called the spread. A typical spread is $50 which the brokerage therefore makes on each transaction.  The brokerage also charges a small commission of $10 on each transaction where the amount the investor puts up as a guarantee (or "margin") is small.

Accordingly, not only does the investor hope that the price of the currency changes in his or her favour by a certain amount, he or she must also hope that it the change in the exchange rate is enough to cover the spread and the commission. The result is that most investors lose money.