What is Forex Trading ?
Forex, also known as foreign exchange, FX or currency trading, is a decentralized global market where all the world’s currencies trade. The forex market is the largest, most liquid market in the world with an average daily trading volume exceeding $5 trillion.
All the world’s combined stock markets don’t even come close to this. But what does that mean to you? Take a closer look at forex trading and you may find some exciting trading opportunities unavailable with other investments.
MAKING A TRADE: HOW TO BUY AND SELL CURRENCY
All forex trades involve two currencies because you’re betting on the value of a currency against another. Think of EUR/USD, the most-traded currency pair in the world. EUR, the first currency in the pair, is the base, and USD, the second, is the counter. When you see a price quoted on your platform, that price is how much one euro is worth in US dollars. You always see two prices because one is the buy price and one is the sell. The difference between the two is the spread. When you click buy or sell, you are buying or selling the first currency in the pair.
Let’s say you think the euro will increase in value against the US dollar. Your pair is EUR/USD. Since the euro is first, and you think it will go up, you buy EUR/USD. If you think the euro will drop in value against the US dollar, you sell EUR/USD.
If the EUR/USD buy price is 0.70644 and the sell price is 0.70640, then the spread is 0.4 pips. If the trade moves in your favor (or against you), then, once you cover the spread, you could make a profit (or loss) on your trade.
How does leverage work in the forex
Leverage” in general terms simply means borrowed funds. Leverage is widely used not just to acquire physical assets like real estate or automobiles, but also to trade financial assets such as equities and foreign exchange (“forex”)
Fortunately, you’re not leveraged 1:1, you’re leveraged 100:1.
The broker only had to put aside $1,000 of your money, so your return is a groovy 100% ($1,000 gain / $1,000 initial investment). Now we want you to do a quick exercise. Calculate what your return would be if you lost $1,000.If you calculated it the same way we did, which is also called the correct way, you would have ended up with a -1% return using 1:1 leverage meaning -100% return using 100:1 leverage.
what is the spread in trading
The difference between ASK and BID is called spread. It represents brokerage service costs and replaces transactions fees. Spread is traditionally denoted in pips – a percentage in point, meaning fourth decimal place in currency quotation. Following types of spreads are used in Forex Trading In finance, a spread trade (also known as relative value trade) is the simultaneous purchase of one security and sale of a related security, called legs, as a unit. Spread trades are usually executed with options or futures contracts as the legs, but other securities are sometimes used.
A Forex spread is the difference in price between what a Forex broker will buy the currency from you for and the price at which they will sell it.The broker will have no problem whatsoever selling off the dollars they just bought, so they do not need to charge you, the trader, a higher spread