What Makes Forex Trading

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What is Forex Trading ?

Forex trading, also known as foreign exchange or FX trading, is the conversion of one currency into another. FX is one of the most actively traded markets in the world, with individuals, companies and banks carrying out around $6.6 trillion worth of forex transactions every single day.

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While a lot of foreign exchange is done for practical purposes, the vast majority of currency conversion is undertaken by forex traders to earn a profit. The amount of currency converted every day can make price movements of some currencies extremely volatile – which is something to be aware of before you start forex trading.

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What is a Forex pair ?

A forex pair is a combination of two currencies that are traded against each other. There are hundreds of different combinations to choose from, but some of the most popular include the euro against the US dollar (EUR/USD), the US dollar against the Japanese yen (USD/JPY) and the British pound against the US dollar (GBP/USD).

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What are the base and quote currencies ?

A forex pair is a combination of two currencies that are traded against each other. There are hundreds of different combinations to choose from, but some of the most popular include the euro against the US dollar (EUR/USD), the US dollar against the Japanese yen (USD/JPY) and the British pound against the US dollar (GBP/USD).

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What is a pip in forex ?

A pip in forex is usually a one-digit movement in the fourth decimal place of a currency pair. So, if GBP/USD moves from $1.35361 to $1.35371, then it has moved a single pip. But, if you’re trading JPY crosses, a pip is a change at the second decimal place. A price movement at the fifth decimal place in forex trading is known as a pipette.

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What is a lot in forex trading ?

Currencies are traded in lots, which are batches of currency used to standardise forex trades. As forex price movements are usually small, lots tend to be very large. For example, a standard lot is 100,000 units of the base currency.

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How does forex trading work ?

Forex trading works like any other transaction where you are buying one asset using a currency. In the case of forex, the market price tells a trader how much of one currency is required to purchase another. For example, the current market price of the GBP/USD currency pair shows how many US dollars it would take to buy one pound.

Each currency has its own code – which lets traders quickly identify it as part of a pair. We’ve included codes for some of the most popular currencies below.

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  • What does it mean to buy or sell a currency pair?

    To buy a currency pair means that you expect the price to rise, indicating that the base currency is strengthening relative to the quote currency. To sell a currency pair means that you expect the price to fall, which would happen if the base currency weakened against the quote.

    For example, you’d ‘buy’ the GBP/USD pair if you think that the pound will strengthen against the dollar – meaning you’ll need more dollars to buy a single pound. Or, you’d ‘sell’ this pair if you think that the pound will weaken against the dollar – meaning you’ll need fewer dollars to buy a single pound.

  • What is the spread in forex trading?

    The spread in forex trading is the difference between the buy and sell prices. For example, the buy price might be 1.3428 and the sell price might be 1.3424. For your position to be profitable, you’ll need the market price to either rise above the buy price or fall below the sell price – depending on whether you’ve gone long or short.

  • What are margin and leverage in FX trading?

    Margin refers to the initial deposit you need to commit in order to open and maintain a leveraged position. So, a trade on EUR/USD might only require a 0.50% margin in order for it to be opened. As a result, instead of needing $100,000 to open a position, you’d only need to deposit $500.

Learn how currency markets work ?

What moves the forex market?

  1. Central banks
  2. News reports
  3. Market sentiment

The forex market is made up of currencies from all over the world, which can make exchange rate predictions difficult as there are many forces that can contribute to price movements. That said, the following factors can all have an effect on the forex market.

Central banks

A currency’s supply is controlled by central banks, who can announce measures that will have a significant effect on that currency’s price. Quantitative easing, for example, involves injecting more money into an economy, and can cause a currency’s price to fall in line with an increased supply.

News reports

Commercial banks and other investors tend to want to put their capital into economies that have a strong outlook. So, if a positive piece of news hits the markets about a certain region, it will encourage investment and increase demand for that region’s currency. If negative news hits, then demand might be expected to fall. This is why currencies tend to reflect the reported economic health of the region they represent.

Market sentiment

Market sentiment, which often reacts to the news, can also play a major role in driving currency prices. If traders believe that a currency is headed in a certain direction, they will trade accordingly and may convince others to follow suit, increasing or decreasing demand.

Forex

Trade globally with PIPSTON Markets

Trade forex with the leading broker on the most appreciated trading platform which is fine tuned by us. Capital Asia technologies is a global provider of online trading services. At Capital Asia we ensure that our clients enjoy a one-to-one relationship focused on maximizing trading capabilities for successful investment. With our fixed spreads, standard leverage, low margin and dedicated customer support we are recognized for our integrity and credibility.

Spread In Pips

Raw Premium Ultra Standard
Liquidity Crypto 5 8 10 12
Forex Exotic 2 3 4 5
Forex Major 0.01-0.10 1.2-1.6 1.6-2.4 2.4-3.5
Global Indices 1.2 2 3 4
Metals 0.06-0.10 1-1.8 2-2.5 2.5-3.5
Spot Indices 0.10 1-1.5 1.5-2 2-3

IB COMMISSION STRUCTURE

IB Raw Premium Ultra Standard
Level 1 3 4 6
Level 2 00 1.5 2 3
Level 3 00 0.5 1 1