At 5 trillion US Dollars a day, the Forex, or Foreign Exchange market is the most liquid financial market in existence. Forex trades include aren’t simply limited to when you change currencies at your local money changer, but they also include each and every trade that takes place between countries, companies in different countries, and more.
Forex trading involves investing in the exchange rates between currencies. For instance – selling one currency, whose value you expect to decrease, and buying another, whose value you expect to increase.
Financial markets are simply markets where people trade financial securities – shares, futures, options and other kinds of investment instruments. They’ve been around since stone-age man traded volcanic glass to make his first tools, developed in the Middle Ages, when rulers traded debt to finance their adventures.
Most Forex platforms nowadays enable traders to safely and swiftly invest in equity shares, indexes, commodities and CFDs. However, the most commonly traded assets are still currency pairs.
When changing money at a money changer abroad or even at a bank, one is usually surprised to see 2 or even 3 prices for each currency rate. The middle rate is usually the central bank’s exchange rate that’s only available to commercial banks. The other two rates are ones at which a broker buys or sells currencies.
The great thing about investing in Forex and CFD’s is that you can invest in an asset’s value rising or falling. Many market gurus have made their FORTUNES on a nation’s currency being devalued. The U.S Dollar is a good prime example.
The two most basic terms in Forex and CFD trading are lots and pips. One describes the size of your average Forex transaction, one is a measurement of the Forex pair’s values. Together, they’ll give you a rough idea of the size of the Forex market, and of the minuscule changes which spell huge profits and potential losses.
Your trading funds are important and you will want to understand how values are being calculated when your Forex and CFD positions are open. As the pips in an asset move so does the value of your equity. Your platform automatically translates the change of value via the pips into your equity. But it is good to understand how lots and pips translate into money. We want to explain a few basics.
One of the first things you’ll realize when trading, is that money is fluid – the value of your money can change rapidly depending on the markets and your open trades. And you will quickly learn to be careful. You need to keep your eye on the bottom line, because depending on your open trading positions the money can often rise and fall like an ocean’s tide.
Margin and leverage: They are among the most complex terms when used in Forex and CFD trading. And when they are understood, your trading will become easier and you will begin to grasp the importance of risk management.
Trading in Forex and CFD’s can sometimes feel a bit perplexing to the newcomer. However, with a good examination of a platform nearly everyone will feel comfortable, and master its merits.