Foreign exchange or ‘Forex’ is the largest market in the world. More Forex trades and total value of trades are executed in the financial marketplace globally than any other, including shares and commodities.
How Does Forex Trading work ?
In Forex, one currency is exchanged or traded for another and therefore each currency ‘pair’ is a market in itself. i.e exchanging Dollars for Sterling is quoted as USD/GBP or Euros against Japanese Yen is quoted as EUR/JPY. The exchange rate between two currency pairs is a floating rate and therefore the rate (or price) moves up or down daily based on influencing factors like economic, political or national conditions. The variability of this price results in opportunities for speculative traders to trade on the rising or falling market.
When you go on holiday and you exchange for example, your Sterling money for physical Euros, Exchanges enable forex to be traded without the need to move physical cash around. When you trade your holiday money the rate you are given is known as an exchange rate. i.e.price for exchanging currencies right here and now. When trading Forex you are using a similar exchange rate known as a currency pair.
Let’s look at an example:
Let’s say that that the currency pair GBP/USD has a current market rate of 1.5560
A movement of the lowest whole number is called a pip. So if the price moves from 1.5560 to 1.5565 this would be a movement of 5 pips.
In spread betting each pip movement will be a multiple of your stake
Let’s say the bid offer spread is 1.5560-1.5559 and you believe the price will fall.
You therefore enter into a sell trade with a stake of £5.
If the price falls to a spread of 1.5540-1.5539 and you close out your trade.
Your gain will be 15559 - 15540 = 19 times your stake of £5 = £95
If the price were to rise then you would end up in a loss making position.
Once you close your trade, this gain will be immediately credited to your account, there is no settlement period to wait. The gain is FREE also from capital gains tax, in accordance with UK laws. So the profit is all yours to transfer out of your account or use for future trading, as you wish.
3DMarkets provides Forex trading on over 37 currency pairs and because Forex is not tied to a stock exchange like other markets, trading can continue 24hrs a day, Sunday evening through to Friday night.
Forex can be traded through any of our high performance applications on Web, Desktop or Mobile, so wherever you are you can get access to your account.
If you are ready to trade Forex then open an account today and we’ll aim to have you up and running within 24 hours.
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