What is Forex Trading?

Forex trading, not a big secret anymore

Yet, it is important to know the foundation before actually start trading with our unique platform. The foundation, we are talking about here, include the different terms which are different from other trading environments such as cryptocurrencies. These terminologies are important as they provide a clear understanding of what this type of trading is. Here are few terms:

• Bid Price: The bid price is the current highest price the market is offering to buy an underlying asset.
• Ask Price: It is the current lowest price the market is offering to sell an underlying asset.
• Spread: The spread is known as the difference between the BID and the ASK price of a particular asset.
• Leverage:The leverage amount provides the ability for traders to benefit from even the smaller market fluctuations without risking big capitals.
• Pips:This is the smallest price movement a currency can make. A PIP is calculated on the fourth decimal place on Finarix.
• Tick Value: The smallest change in value in the last decimal place. A tick is basically 1/10 of a PIP and it is calculated on the fifth decimal place.
• R. Margin: Required Margin is the minimum investment amount required to enter a trade.
• Strike Price: (Bid price + Ask price) / 2

Besides, the terms, it is also important to know that Forex trading greatly depends on the fluctuations in the price of specific assets. Currency pairs are the most traded asset traded under the Forex market. However, at Finarix, we made it possible to trade more than 200 assets the forex way. The pairs consist of the base currency and quote currency.

How to read a currency pair, let’s take the EUR/USD pair for instance.
Here, EUR = Base currency ; USD = Quote currency

As such, if the EUR/USD is at 1.1400. This means that you need to have US $1.1400 to buy one euro.

In the forex market, we have three categories of Forex pairs, including Major pairs, Minor pairs and Exotic pairs. Major pairs are the most liquid and widely traded currency pairs in the world, and mainly consist of the US dollar-quoted with another currency. Exotic currency pairs are made up with one major or most traded currency which is paired with the currency of an emerging economy. The table below depicts some example of currency pairs from each of the three categories.

While trading any currency pair, a trader can make profits either by opting for BUY or SELL. For instance, you can BUY a currency pair, with the aim of making profits if you sell it later for a higher price. As such, you make profits when you sell a currency pair when the price falls.

Advantages Of Forex Trading

1. Availability – The FX market is open 24 hours a day, 5 days a week, traders can trade with their phones or computers online.
2. No commissions – No clearing fees, no exchange fees, no brokerage fees.
3. Leverage – This allows traders to make profits and manage risk capital at the same time.
4. Liquidity – The huge trading volume represents the largest asset in the world.
5. Instant Returns – Since the market keeps moving, you do not have to wait for an expiry time, instead, you are constantly making profits.

Furthermore, along with currencies, the FX/CFD allows traders to trade on many more underlying assets which include commodities, indices, stocks and even cryptocurrencies which is the new craze and it is currently changing the way we are buying and consuming. We went the extra mile to provide other supportive features to trade in the most accurate way.

Factors to consider

Like any other assets available on our platform, forex is greatly affected by several global events which result in price movements or fluctuations. These factors include:

• Economic events.
• Socio-political events.
• Supply and demand of particular assets.

As such, there are two main approaches that can help traders to provide much information and hence increase the accuracy. These are:

• Fundamental Analysis: This approach is concerned with the analysis of news and reports which provides greater insights to what are the global events that will determine the price fluctuations of assets.
• Technical Analysis: Technical analysis is concerned with the analysis of previous data available on specific assets. However, compared to previous years, traders no longer require advanced mathematical approaches to read graphs as we provide these features on our trading platform within few clicks.