What is Forex trading?
Foreign exchange is the active change from one country’s currency into another. The need for foreign exchange is important for numerous commercial purposes and also when one is visiting a foreign country as a tourist. Businesses all over the world are expanding, and we truly are living in a global community. Thus, the need to make transactions in different currencies will only going to grow.
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The Foreign exchange market is a financial market where several global currencies are traded, and it is known by its abbreviated form called Forex and also FX. The Forex market is considered the most liquid market, which means there is significant trading between the buyers and sellers. In a regular day, there are transactions in the Forex market worth trillions of dollars.
The best thing about the Forex market is that there is no centralized location and market is open 24 hours for 5 days a week. As a trader, you can open a Trading account and start trading in currency pairs.
The Details of Forex Trading:
Every country has its unique currency, however in the Forex market, most forex trades are with global currencies with significant value, the potential for bigger returns, and less volatility. Some of the common global currencies that usually perform well include British Pound (GBP), U.S Dollar (USD), Euro (EUR), Swiss Francs (CHF), Australian Dollar (AUD), Canadian Dollar (CAD), and Japanese Yen (JPY).
The main currencies are always traded in pairs known as ‘Majors’. The typical pairs that are traded consists of EUR/USD, USD/JPY, GBP/USD, USD/CAD, AUD/USD, and USD/CHF. As an investor, you can either buy or sell one currency against the other hoping that your chosen currency will gain or decline and result in a profit, the art of predicting the increase or decrease in value of the currency is called ‘Speculating’.
The interbank market includes banks that trade among each other. The price of the market is determined by supply and demand. The value of the currency depends on several factors such as the political and economic condition of the country, along with interest and inflation rate. Nearly $ 4 trillion worth of currencies are traded every day. The Characteristics of investing in Forex Market are
- Simple entering and exiting a trade in almost all the major currencies
- Diversified and over the counter (OTC) market
- Traders can leverage position to manage large positions by just a fraction of their own money
- Flexibility to go ‘Long or Short’
- High liquidity
- Broad range of currency pairs can be traded
- Assists in currency conversions for trade, touring, and investment purposes
- The Forex markets are open 24/Hours
How to Trade Forex:
In the Forex market, the currencies are always traded in pairs, for example, GBP/USD, where the base currency is GBP and the quote currency is USD. The price of the currency is not an absolute value; instead, the Forex market determines the exchange rate by setting the market value of one currency if paid for another. There are two ways in which you can trade Forex, which is Spot Market and Forex Contract for Difference (CFDs).
- Spot Market:
The direct transaction between two currencies is called ‘Spot Market’ and is done among one individual who is buying the currency, and another individual is selling the currency. For example, take a pair such as GBP/USD. You would buy Pound in exchange of the Dollar at a predetermined exchange rate that is determined by the market.
- Forex CFD:
A CFD is a financial agreement among a broker and a trader, where one party has to pay the other on the difference of the value of the underlying asset from the point the trade is opened to the point the trade is closed. Trading Forex CFD means that as a trader, you have the opportunity to speculate on the currency pairs and opt for either a Long or Short strategy. For instance, take a GBP/USD
If you speculate that in coming days the British economy will become strong and the value of Pound will rise against the U.S Dollar, then you will go ‘Long and trade a Buy position on the GBP/USD’. If the price of Pound rises as predicted, you will get profit on every point the GBP appreciates against the USD. If the market falls, then you would make a loss if the price of Pound depreciates against U.S Dollar.
If you speculate that the U.S economy is flourishing and U.S Dollar will perform better than the British Pound, then you would go ‘Short and trade a Sell position on the GBP/USD’ at the start of trade to make a profit. If the USD fall in value against the Pound than you would make a loss.
Using Leverage in Forex CFD:
The amount of money you can invest or trade in the Forex market depends on the amount of leverage you get and the capital you want to risk. If the market allows leverage of 30:1, it means as a trader, you can open an account for £1000, and buy or sell currency worth as much as £30,000. But leverage option is tricky as it magnifies the profit when you speculate right, but the losses also magnify if the market moves against your speculation.
In the Forex market, the currencies are traded in ‘Lots’ which is also known as the contract size or a number of units in the base currency. A lot size with 1000 units of the base currency is ‘Micro Lot’, a lot size of 10,000 units is called ‘Mini Lot’, and a lot size of 100,000 units is called a ‘Standard Lot’.
Online Forex Trading:
The trading platform is an online channel that allows trade among the different currencies’ pairs. We give investors the option to use web trader platform and smart applications that help you to manage transaction simply from your smartphone.
The online platform gives access to you on various tools such as historical data, current price movements, charts and indicators that can help you to speculate and monitor the status of the Forex market in real-time. The amount of profit or losses depends on the Forex trading strategy that you choose, and the amount of money you deposit. You need to carefully study the market trends, try to manage your risk, and correctly and try to predict the market movement to utilize forex market benefits.
The information above is for education purposes only and cannot be considered as investment advice. Past performance is not reliable indicator of future results.
The Basic of CFD Trading
CFD trading course is designed to give you a firm foundation, enabling you to enter the CFD market with confidence and understand exactly what it takes to trade CFDs. Trading CFDs will require a lot of work on your behalf, and you will need to apply sensible and efficient risk management strategies.