FX trading: Your quick and easy guide

When it comes to trading, everyone’s got their preferred methods and platforms. FX trading is one way to get involved and it’s a popular way to trade, with many advantages to the strategy.

Find out more about FX trading with the basics you need to know about the definitions and procedures.

FX trading: A definition

FX trading is the process of buying one currency while simultaneously selling another. The quotes are displayed in pairs with one currency value following the other and traders speculate on the differences in relative prices over time. The idea of FX trading is to predict how one currency will strengthen or weaken against the other. Forex trading is open 24 hours and it is a popular way to trade any time of the day or night.

Advantages of Forex trading

You have a trading margin that goes from 0.20% with CMC Markets, and is often referred to as 500:1 leverage. With this leverage, you use your capital more effectively as you only have to put down a percentage of the overall position in order to get fully involved in the market. You increase your potential for profit (although, it has to be remembered, that you also increase your loss potential as increased leverage builds losses on the occasion of rapid price fluctuations, as well as having the potential to rapidly maximise profits).

Another advantage of the FX trading platform is it never closes. You don’t have to wait for a centralised exchange to open. You can trade whenever markets are operating, and you can speculate on currency changes as events occur to affect the currency – you don’t wait. The rapid changes in prices mean constant opportunities to trade and while the markets are constantly moving you need to be sharp and monitor your position effectively while you are putting your investment strategy into place. It’s a liquid market, more so than any other financial marketplace.

Basic examples for business

You want to, for example, speculate on EUR/GBP because you think there will be movement on this position. The margin rate of 0.20% means you only have to put in 0.20% of the total value as your margin. You buy at £5 per point and your position margin works out at £84.95. In the case that the price does rise and you close the trade by selling when the price has risen 57 points, you would have a profit of £285 which is your stake of £5 multiplied by the 57 points. However, if you predicted wrong and there was a drop, you sell to close the bet and your loss is £285. The trick to managing FX trading is to have a planned strategy and to monitor your successes and failures carefully. With the market moving so fast it is vital to keep a handle on your trades and make movements with foresight and to a set plan.