What the forex market is and why trade it. Forex trading is the conversion of currencies into one another. It's the largest financial market in the world – and one of the most volatile.

What the forex market is and why trade it

Why would anyone want to trade the forex markets?

What the forex market is and why trade it. Forex trading is the conversion of currencies into one another. It's the largest financial market in the world – and one of the most volatile.

What the forex market is and why trade it


Spread betting and CFD trading are leveraged products and as such carry a high level of risk to your capital which can result in losses greater than your initial deposit.

These products may not be suitable for all investors. CFDs are not suitable for pension building and income. Ensure you fully understand all risks involved and seek independent advice if necessary. Help Login Sign up English. Forex for Beginners — What is Forex? Forex explained The aim of forex trading is simple. Just like any other form of speculation, you want to buy a currency at one price and sell it at higher price or sell a currency at one price and buy it at a lower price in order to make a profit.

Some confusion can arise as the price of one currency is always, of course, determined in another currency. In forex trading terms this value for the British pound would be represented as a price of 2. Currencies are grouped into pairs to show the exchange rate between the two currencies; in other words, the price of the first currency in the second currency. As these currencies are not so frequently traded the market is less liquid and so the trading spread may be wider. Forex trading spread Like any other trading price, the spread for a forex pair consists of a bid price at which you can sell the lower end of the spread and an offer price at which you can buy the higher end of the spread.

It is important to note, however, for each forex pair, which way round you are trading. When buying, the spread always reflects the price for buying the first currency of the forex pair with the second. So an offer price of 1. When selling, the spread gives you the price for selling the first currency for the second. So a bid price of 1.

Calculating your profit Take another example. If you think the price of the euro is going to rise against the pound you would buy euros at the offer price of 0. Note that your profit is always determined in the second currency of the forex pair. Again your profit is determined in the second currency of the forex pair. Both of these products allow you to speculate on the movements of currency markets without making a physical trade, but they operate in slightly different ways.

With spread betting you stake a certain amount in your account currency per pip movement in the price of the forex pair. Forex traders have been using spread betting to capitalise on short-term movements for many years now.

Find out more about spread betting. With CFDs you buy or sell contracts representing a given size of trade. Your profit or loss is calculated in the second currency, in this case US dollars, and then converted if necessary into your account currency. Find out more about CFDs. Instead you put down a margin deposit, which is a fraction of the full value. Your profit or loss is realised when you close your position by selling or buying.


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