The Foreign Exchange market, also called FOREX or FX, is the global currency trading market. With a daily volume of more than $5.3 trillion, it is the biggest and most exciting financial market in the world. Whether you sell EUR 100 to buy US dollars at the airport or a bank exchanges 100 million US dollars for Japanese yen with another bank, both of these are FOREX deals. The players on the FOREX market range from huge financial organizations, managing billions, to individuals trading a few hundred dollars.
Thanks to the internet you can trade on the FOREX market in the same way as traders from the largest banks and investment funds.
All you need to get started is a computer with internet access and a trading account with a FOREX broker.
On the FOREX market one currency is exchanged for another. The single most important thing on the FOREX market is the exchange rate between two currencies (a currency pair).
You’ve probably seen it on the news:
|Currency pair||Exchange rate|
An exchange rate can change very rapidly, sometimes several times a second, so there’s a lot of action going on 24 hours a day, 5 days a week. In general, the currency exchange rates reflect the health of countries' economies. If the economies of the Eurozone are doing better than the US economy, the euro will go up compared to the dollar (EUR/USD ↑) and vice-versa.
Here's an example of a FOREX trade. You decide to buy 1 000 euros against US dollars. The EUR/USD exchange rate at which you can BUY at this moment is 1.4500 so you pay $1 450.
Later, the EUR/USD exchange rate at which you can SELL euros for US dollars is 1.5500. You sell your €1 000 and get $1 550. Having started with $1 450, you now have $1 550 – you’ve made a profit of $100. Alternatively, the EUR/USD exchange rate at which you can SELL euros for US dollars is 1.3500. You sell your €1 000 and get $1 350. Having started with $1 450, you now have $1 350 – you’ve made a loss of $100.
That’s how money is made or lost on the FOREX market.
If you look at the FOREX quotes on your trading platform you will see that there are 2 prices for each currency pair. One is the price at which you can buy, referred to as the "ask price", and the other is the price at which you can sell, referred to as the "bid price". The difference between those two prices is known as the spread. The ask price is always higher than the bid price.
If your FOREX broker offers you leverage of 1:100, you can trade with 100 times more money than your deposit. This means that if you want to buy 100 000 EUR/USD you only need to have EUR 1 000. This leverage you can take a position with 100 times larger value, resulting in 100 times bigger profits or losses, therefore great care is required when placing your trade.
To start please get a FREE Practice Account and log in. Then pick a currency pair (e.g. EUR/USD), choose a quantity and press the BUY button if your think the value will rise. Now you are a trader in a market used by millions of people all around the globe. You will earn money if the EUR/USD price goes up, and lose if it goes down. Check out your current profit or loss in the Open positions window. You can keep this position as long as you like. And when you no longer wish to keep your position, just close your trade by pressing the X button in the Open Positions window.
In the above example, we bet that the EUR will go up against the USD so we bought EUR/USD hoping to sell it later at a higher price. This is called long position. But what if we expect that the EUR will go down against the USD? Well, then you do the opposite - you sell the EUR/USD, expecting to buy it cheaper at a later time. The short trading enables you to take advantage if the exchange rate is going down.
The currency market /FOREX/ works 24 hours a day, 5 days a week. We don’t expect that you will monitor the prices during all of that time in order to make a deal. You can make lots of deals without being in front of your computer. How? Using Pending Orders. Just tell us if you want to BUY or SELL and the price at which you want to do it and the platform will automatically make the deal for you when this price is hit.
You can close your open trades using Pending Orders. Try it yourself – click on the EUR/USD position that you first opened. It is in the Open Positions window. A Pending Order will appear. Just type your exit price and click on Confirm.
Pending Orders that will close your position on profit are called Limits. The ones that prevent you from losing more money and close your position on a certain loss are called Stops. If you want to place both a Stop and a Limit on an existing position then you should use an OCO Order /One cancels the other/.
Now you know how to BUY and SELL at market prices and how to place Pending Orders. If you like it so far you may continue by educating yourself on how to predict the future movements of the market. Read through everything in our section Learning Centre.
With the Auto Close feature you can make a market order, which will be automatically closed at a level you have pre-determined. You can set this level both as a market price, and as a money value – in other words, you can have the Auto Close fill your order when either at price X, or when you have made or lost $ X from the transaction (this value will be in your account currency). Here is what else you need to know about the Auto Close feature:
Trade Currencies, Gold, Oil and CFDs in your browser.Get a FREE €10 000 Practice Account »