Forex is a shortened term, which stands for Foreign Exchange. It is also known as FX in the current trading and currency market. Simply put, it is the largest method of exchange, trading an astounding $4 trillion every single day. Furthermore, is open to all major businesses, institutions and individual investors: it is an open platform.
Companies such as CMC Markets offer the most up-to-date information on currency markets and advise businesses and individuals accordingly.
The objective of Forex trading is relatively straightforward. Just like any other form of conjecture, you want to buy currency at a lower price and sell it on for a higher price in order to make some kind of profit.
Confusion can be evident, as the price of one currency is often dependent on that of another. Take the example of the British pound, this could be measured as 2 US Dollars, if the current exchange rate between GBP and USD is exactly 2. However, we know that these rates fluctuates (often daily) and the currencies are dependent on one another.
Some of the major paired currencies are as follows: EUR/USD, USD/JPY and EUR/GBP. However, it is permissible to trade in other lesser known currencies such as Norweigan krone or the Mexican peso. These currencies are not readily traded on the market and their trading spread may therefore by wider.
Forex Trading Spread
Much akin to other trading prices, the spread for a forex partnership is comprised of a bid price at which you can sell (usually the lower end of the price) and an offer purchase price. It is really important to remember that for each forex pair you need to know how and which way round you will be trading.
When purchasing, the spread will always mirror the price for buying the initial currency of the forex partnership in conjunction with the second. Thus, an offer price of 1.4000 for EUR/USD essentially means that it will cost $1.30 to purchase 1 Euro – pretty straightforward. So you purchase if you suspect the price of the euro against the dollar is going to increase, in this case that is, if you will later sell the 1 euro accrued for more than the $1.30 purchase price.
Spread Betting/CFD trading
There are two different methods for trading forex: CFDs and spread betting. Both platforms permit you to postulate on the fluctuations of currency markets without actually making a trade, but both work in varying ways.
with spread betting you put in a certain amount per pip fluctuation in the price of the forex partnership. Let’s use an example: you may buy (or alternatively sell) £20 per pip on USD/JPY, in order for you to make £20 for every pip the US dollar increases/decreases against the Japanese yen. Forex workers have used spread betting to maximize the potential of short-term movements for decades. Spread betting is a sensible way of investing stock in currency and seeing short-term benefits.
Alternatively, with CFDs you purchase or distribute contract symbolizing a given size of trade. Let’s take another example: you may decide to buy a contract of GBP/JPY, which with CMC Markets represents a trade of £20,000. Your profit or loss is determined in the second currency chosen, in this case the Japanese Yen, and is then changed into the currency applicable to your account.
Whichever method or system you decide to use you do not use the full currency value open to your current position. Firstly, you put a margin deposit in position, which is equivalent to a fraction of the full value. Secondly, you don’t actually purchase or sell any currency: you are actually opening a postulating position on a fluctuation in value of the forex partnership. Thus, your profit or loss is available when you terminate your position by selling or purchasing.
Advantages of Forex Trading
Basically, Forex is a 24 hour system, so unlike the stock exchange where trading is done within set market hours, you are able to trade at any point during the day. With trading hours open you can buy and sell at any time and at your leisure. Currency trading is a relative game, which means that you get out what you put in.