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New to FX - Educations

THE FOREX MARKET

The foreign exchange market, also sometimes called the Forex or FX market is the largest financial market in the world. Each trading day funds with an overall value of over USD 4 Trillion are exchanged. The Forex market exists since 1970, and as of today it is the biggest, most liquid market in the world.

Investing/Trading with forex can be reqarding since it is free from any external controls and involves free competition. It is not conducted by any central exchange but on the interbank market, which is an "OTC" (Over The Counter) market. The 24-hour-a-day FX market operatesdays a week and begins on Sunday at 5:00 p.m. USA Eastern time, and goes through to Friday at 5:00 p.m. USA Eastern time. Forex trading opens in Australia, and moves across the globe through Tokyo, London, and New York through several time zones.

There are very many currency pairs which are traded, but the main ones are called "Majors" and these are the seven most actively traded currencies. Here they are listed with their symbols:

  • Euro (EUR)
  • U.S. dollar (USD)
  • Japanese yen (JPY)
  • Swiss franc (CHF)
  • British pound (GBP)
  • Canadian dollar (CAD)
  • Australian dollar (AUD

Alternatively there are several exotic currency pairs that can be traded, but the majors offer the most liquidity and are usually the ones with the smallest spreads.

Speaking in trading terms there are two types of analysis that are usually used for decision making. One is called Fundamental Analysis, and the other Technical Analysis or TA. We believe that for trading the forex market successfully, you have to consider both. While TA helps you to analyse the charts with different methods, Fundamental Analysis is helpful to understand the market movements.

CONTRACTS FOR DIFFERENCE

A CFD is an agreement between the buyer and seller speculating on changes in values. The product allows traders to speculate in future increases or decreases in the value of a specific asset, for instance a share, a currency, a commodity or an index.

CFDs are leveraged products and are traded between individual traders and CFD providers and/or market makers.

Traders entering into a CFD contract are not buying the underlying (share, commodity, currency, index etc.) itself, even though the movement of this leveraged product is linked to its underlying therefore the movement of a CFD mirrors the movements (also decrease and increase) of the underlying product.

CFDs are margin traded. A trader is only able to trade a CFD by settling a defined percentage of his capital used for trading purposes, which is known as "margin" and may vary between 1% and 80% of the trader's capital. Profit/loss is determined by the difference between the buy and the sell price of the actual CFD.

As an example on a CFD where the underlying is a stock, if this CFD requires a 10 % margin to open a trade a 10 % increase in the market price of the underlying stock would result a 200 % return on the investor's capital. Alternatively, a 10% fall in the market value of the underlying may result a 200 % loss on the investor's account.

CFDs do not expire, any positions that are left open overnight will be 'rolled over' i.e. the position carries forward to the next day. Therefore any profit/loss is realized and credited or debited to the trader's account and also financing charges are calculated. CFDs are not Loyal Bank's products but third counterparty's.

To learn more about CFDs, please click here.