Forex, aka fx, foreign exchange and currency trading, is the market for trading currencies. The largest fiscal market globally, the main reason for the popularity of forex trading is them liquidity of fx, so the bid-offer spreads are small in comparison to other asset classes, especially in the case of major currency pairs.
Other benefits include:
- Forex is a 24 hour market, with trading positions that can be opened and closed at all times, and trading online means that your orders are executed immediately.
- Forex trading has lower costs than other fiscal instruments, as fx trading is commission free, and you can make high use of gearing thanks to the higher levels of liquidity than in other fiscal markets. For a deposit as low as $500, or 5%, you can trade $100,000 unit currency lots.
- As currencies are traded in pairs, one will always be moving against another, so it's possible to turn a profit any time. The most popular currency pairs include very liquid currencies like the Australian, US and Canadian dollar, and the pound, yen, euro and Swiss franc.
- And, despite being a geared asset, forex can be an advantage for traders with a clear strategy as price movements are generally as predictable as they are volatile.
An example forex trade
An example fx trade could be if you chose to go long on the British pound in opposition to the US dollar. As currencies are traded in pairs, trading is used to speculate on the strength of one currency against another you purchase ( go long ) if you think the first named currency will rise in opposition to the second one and you sell ( go short ) if you think the first named currency will fall against the second one.
It is quoted at 1.4736 / 1.4739 and you purchase one contract at 1.4739.
The movements in the currency values are called 'pips', a pip being a unit of 0.0001 US dollars per pound. For each 'pip' that the pound rises, your profits increase, for every 'pip' that the pound falls, your profits fall. In a GBP100,000 contract, you have an exposure of $10 for each pip movement, figured out by multiplying the pip unit by the value of the contract ($0.0001 x GBP100,000 = $10). So if sterling rises to 1.4738, you make $20.
When your account is open it will be altered daily to show the overnight effect of the difference in interest rates between the GBP and the USD, alongside an interest rate charged by your CFD broker for holding a long position.
Let's assume that five days later GBP/USD is trading at 1.4874 / 1.4877 and you opt to take your profit, selling your contract to close your position. The difference between the closing level of 1.4874 and the opening level of 1.4739 is 0.0135, so your profit is $1350 ( USD0.0135 x GBP100,000 = $1350 ).
Article Source: http://EzineArticles.com/6352629
Other benefits include:
- Forex is a 24 hour market, with trading positions that can be opened and closed at all times, and trading online means that your orders are executed immediately.
- Forex trading has lower costs than other fiscal instruments, as fx trading is commission free, and you can make high use of gearing thanks to the higher levels of liquidity than in other fiscal markets. For a deposit as low as $500, or 5%, you can trade $100,000 unit currency lots.
- As currencies are traded in pairs, one will always be moving against another, so it's possible to turn a profit any time. The most popular currency pairs include very liquid currencies like the Australian, US and Canadian dollar, and the pound, yen, euro and Swiss franc.
- And, despite being a geared asset, forex can be an advantage for traders with a clear strategy as price movements are generally as predictable as they are volatile.
An example forex trade
An example fx trade could be if you chose to go long on the British pound in opposition to the US dollar. As currencies are traded in pairs, trading is used to speculate on the strength of one currency against another you purchase ( go long ) if you think the first named currency will rise in opposition to the second one and you sell ( go short ) if you think the first named currency will fall against the second one.
It is quoted at 1.4736 / 1.4739 and you purchase one contract at 1.4739.
The movements in the currency values are called 'pips', a pip being a unit of 0.0001 US dollars per pound. For each 'pip' that the pound rises, your profits increase, for every 'pip' that the pound falls, your profits fall. In a GBP100,000 contract, you have an exposure of $10 for each pip movement, figured out by multiplying the pip unit by the value of the contract ($0.0001 x GBP100,000 = $10). So if sterling rises to 1.4738, you make $20.
When your account is open it will be altered daily to show the overnight effect of the difference in interest rates between the GBP and the USD, alongside an interest rate charged by your CFD broker for holding a long position.
Let's assume that five days later GBP/USD is trading at 1.4874 / 1.4877 and you opt to take your profit, selling your contract to close your position. The difference between the closing level of 1.4874 and the opening level of 1.4739 is 0.0135, so your profit is $1350 ( USD0.0135 x GBP100,000 = $1350 ).
Article Source: http://EzineArticles.com/6352629