A large difference in rates can be highly profitable for the trader, especially if high leverage is used. However, with all levered investments this is a double edged sword, and large exchange rate price fluctuations can suddenly swing trades into huge losses. On 1 January 1981, as part of changes beginning during 1978, the People’s Bank of China allowed certain domestic “enterprises” to participate in foreign exchange trading. Within the interbank market, spreads, which are the difference between the bid…
