The objective of Forex is relatively straightforward, as it like any other way of speculation on the trading market. You purchase currency at one price and you sell it at an inflated price, so that you can make an adequate profit.
CMC Markets offer a comprehensive guide on their website on how to trade in Forex and how to access the different platforms. CMC also explain what research is needed to be done beforehand before become involved with Forex trading. They have professional and efficient advice that is laid out both pictorially and literally, so clients can see exactly how and what to do when trading in Forex. They also look at current currency markets and look at activity from markets, so that any investments made can be done so sensibly.
Bewilderment can be apparent if the price of one currency rises or falls against that of another. Take the example of the British pound – 1 pound could be measured currently at 2 US dollars if the exchange rate was 2 US dollars to every pound. However, this fluctuates dependent on a number of external factors.
In Forex trading realms the value for the British pound would be seen at a price of 2.0000 for the partnership GBP/USD. Currencies are normally partnered to display the current exchange rate between the two currencies in question. In layman’s terms the price of the first currency against the price of the second currency.
Some currency pairs as known as major pairs and these are as follows:
– EUR/USD
– USD/JPY
– EUR/GBP
It is also permissible to trade in other minor currencies such as the Norwegian krone or Mexican peso. Because these currencies are not usually traded on the open market, it is less liquid, so that trading may spread to a wider remit.
Forex Trading Remit/Spread
Akin to any other trading prices, the price for a Forex partnership is comprised of a bid price at which you can distribute (the bottom end of the spread) and an offer price at which you can purchase (the higher point of the spread). It should be recognized, however, for each Forex partnership, which way around you intend to trade.
When purchasing the spread will always mirror the price of the initial currency of the Forex partnership. Thus, an offer price of 1.4000 Euros against US Dollars would mean that it would cost you $1.40 to buy 1 Euro. Ostensibly, you would make a purchase if you surmised that that price of the Euro against the dollar was going to rise, that is, if you think that later you will sell you 1 Euro for more than $1.40 you purchased it for.
When you are selling the spread illuminates the price for the selling the initial currency against that of second. Thus, a buyer’s price of 1.4000 for the Euro against the US Dollar means you would be able to sell 1 Euro for $1.30. Moreover, you would sell if you thought the price of the Euro was going to decrease against that of the US dollar, so you can buy back your 1 Euro for less than the $1.30 you primarily purchased it for.
Spot Markets, Forwards and Futures Markets
There are three routes that businesses, individuals and corporation trade in Forex: spot market, futures market and the forwards market. Forex trading in the spot market is the largest due to the fact it is the ‘underlying’ asset that the other two markets are centred on. Historically, the futures market was a popular choice for traders because it was available to independent investors for longer stints. Nevertheless, with the advancements in electronic and online trading, the spot market has grown more popular and now is more prevalent then the futures market, as it is more accessible for traders and speculators alike.
When people allude to the Forex market they are usually talking about the spot market. Forwards and futures markets tend to be used by larger corporations and businesses who want to hedge their foreign exchange problems out to dates in the near future.