What is Forex?

The global foreign exchange or currency (“FOREX”, “Forex” or “FX”) market is the largest market in the world, with more than $5 trillion daily turnover dwarfing the combined turnover of the world’s stock and bond markets. For this same reason, private investors and individual traders have entered the market and discovered several advantages – many of which are not available in other markets.

The liquidity and competitive pricing available in this market are unsurpassed, and today with the irregularity in performance in other markets, the growth of Forex trading (Currency trading), investing and management is accelerating.

What are the Features of Trading Forex?

More recently, private investors and individual traders have entered the market for global currency as they discover the advantages of:

• Trading leverage
• Market liquidity with 24 hours a day trading
• Commission free trading (standard account) or very low dealing costs
• Dynamic movement and opportunities for profit

Aggressive investors are attracted by the volatility of the Forex market and the opportunity for substantial profits, particularly when using leverage.

Please note: The effect of leverage is that both gains and losses are magnified. You should only trade if you can afford to carry these risks.

Who Trades Forex?

Online trading, web-based research and analysis combined with competitive pricing have made the market more accessible. Hundreds of thousands of informed individuals, businesses and investment funds actively trade Forex. This means that anyone from beginners to experts trade daily.

How Do You Trade Forex?

Beginners and novice traders are always curious to learn how to trade Forex in both practical and analytical terms. When it comes to FX trading, it’s important to develop a strategy that works for you. This can be done by combining thorough research and practising with a free demo account. Our guide on forex trading for beginners allows new traders to develop their skills.

Which is the Best Platform for Forex Trading?

MetaTrader 4 is a leading forex trading platform that allows beginners and experienced traders alike to conduct fast trades, adequately analyse the market, and use a platform that’s efficient and reliable. Offering a free demo account, MetaTrader 4 can be the perfect introduction to forex trading for beginners, as they can experience real trading experiences at no cost. MT4 also offers advanced charting options, mobile platforms, and the ability to trade Forex, Indices and Commodities.

Base Currency and Counter Currency

A trade requires two currencies (a cross) in which the first currency is known as the “base currency”, and the second currency is known as the “quote currency”. A forex trade involves the simultaneous buying of one currency and selling of another.

Buying a currency pair means one is speculating in the base currency appreciating in value against counter currency. Alternatively, when selling a currency pair, you are expecting the base currency to depreciate against the counter currency.

Swisssborg will automatically exchange your profits and losses into your deposit currency.

Bid-Ask Spread

When trading Forex, investors are quoted a dealing spread, which offers a buying and selling level for the trade. When clients are wanting to sell a currency pair, they are interested in the Bid price. Alternatively, when clients are wanting to buy a currency pair, they are interested in the Ask price. The Bid price is always lower than the Ask price.

The difference between the Bid and Ask price is known as the Spread, which is usually measured in pips.

The dealing spread for major currencies can range according to market liquidity, however, you will find major currencies typically range between 0.5 – 2 pips.

For example, when AUD/USD is trading at 0.71358/0.71376, the spread is 1.8 pips.

What is Leverage in Forex Trading?

One of the key aspects of Forex trading is the ability to trade using “leverage”. It determines the required margin and amount of funds traders need to have in their trading accounts in order to take a position. Put simply for beginners, leverage allows you to take a position of much higher value than the monies deposited in your trading account. So in other terms, a higher leverage means a lower margin requirement to place a trade.

How Does Leverage Work When Trading Currencies?

You have a trading account with Swisssborg with a balance of $10,000. If you have a trading leverage of 100:1 and wish to use $1,000 on one single transaction as the margin, then you will have an exposure of $100,000 in your base currency ($1,000) = 100 x $1,000 = $100,000 (trade value). The concept here is that leverage has allowed you to make a transaction with a total exposure of $100,000.

Thus, the leverage facility allows you to potentially make large profits (or losses) from a relatively small initial investment.

Margin Trading Explained

Forex trading is normally undertaken on the basis of ‘margin trading’.

A relatively small collateral deposit is required in order to initiate much larger traded positions in the market.

For example, you have a trading account with Swisssborg with a balance of $10,000. If you have a trading leverage of 100:1 and wish to use $1,000 on one single transaction as the margin, then you will have an exposure of $100,000 in your base currency ($1,000) = 100 x $1,000 = $100,000 (trade value). The concept here is that Swisssborg have temporarily given you the necessary credit to make the transaction you are interested in making.

Margin trading demands a disciplined approach and a solid understanding of the risks involved. Beginners should ensure they understand all risks fully before undertaking margin trading.