An introduction to forex trading
An introduction to forex trading
The global forex market (also referred to as foreign exchange, fx, currency trading) is the world’s most traded market. The reasons why include the ability to trade on margin, the high liquidity 24 hours a day and the low costs associated with forex trading.
Trading forex with margin
Forex is normally traded on margin. A relatively small deposit can allow you to control much larger positions in the market. When trading the main currencies, most forex and CFD brokers offer trading on a margin basis. Some brokers offer as much as 1% margin on positions, meaning you only need to put up £1 to control £100. However, this magnified exposure also means that forex trading can result in losses that exceed your initial deposit.
Risk management
Trading in a geared market like forex comes with significant opportunities and risks. It is therefore important to understand risk and learn how to manage your portfolio effectively. Fortunately, most forex and CFD brokers offer a wide range of tools to help you manage risk without capping your potential for profit. These tools include trailing stops, guaranteed stops and limit orders.
Forex pairs
Forex trading is done in pairs making it important to keep abreast of more than one country and market. For example the value of sterling is always expressed in relation to another currency, such as the US dollar, the euro or the Japanese Yen. The major currency pairs are EUR/USD (Euro/US Dollar), GBP/USD (Pound/US Dollar), USD/JPY (US Dollar/Yen), and USD/CAD (US Dollar/Canadian Dollar). Minor currencies include: EUR/PLN (Euro/Polish Zloty) and THB/JPY (Thai Baht/Yen).
One way of taking a position on the forex markets is by CFD trading. The UK’s largest CFD provider is IG Markets and they offer a range of free resources designed to help you become a better trader, from online seminars to expert daily market analysis. Find out more at www.igmarkets.co.uk.