All about Forex
Forex trading is known to most investors from their holiday travels. But did you know that the foreign exchange market is many times bigger than the stock market? $ 4 trillion change hands every day around the world. In forex trading, investors rely on changes in exchange rates. How Forex trading works and how to become a Forex trader at FXFlat, your CFD and Forex broker, is explained on this page.
Opportunities and risks in forex trading
The foreign exchange market - also known as foreign exchange market, forex or "FX" - is a lever trade. This means that even small amounts of money can be moved. For each trade, only a security deposit, the so-called margin is deposited. If, for example, a 50: 1 lever is used, positions with a value of € 50,000 can be moved with a margin of € 1,000. Trader benefit fully from the price development, even if only a small amount is actually invested.
It should be noted, however, that the leverage can be knocked out in both directions. Thus, on the one hand disproportionately high profits and on the other very high losses possible. Therefore Forex trading is especially suitable for people who already have some trading experience. Comprehensive basic knowledge is essential for successful currency pair trading.
How to start in forex trading?
In the beginning there are the basics. These include, among other things, learning the most important technical terms. Subsequently, the learned can be implemented with the free demo account at FXFlat in practice. Here, beginners without risk can make the first trades and track the development of the courses. In addition, the demo account can be used to test and compare FXFlat's trading platforms with extensions such as the StereoTrader.
Beginners should be aware from the start that foreign exchange is a highly speculative financial instrument. Only those who are aware of the risks can successfully trade in the long term. Therefore: Do not be put off by initial failures, these are part of it and are completely normal. In addition, if you have any questions, please contact the experienced account managers at FXFlat in order to use your experience from the demo account later in the live account.
Which currency pairs are tradable on FXFlat?
The bulk of currency trading takes place in the key currencies US Dollar, Euro, Yen, Pound and Swiss Franc. These currencies are called the "majors". Other currencies are called minor values. They buy or sell a reserve currency, such as the US dollar, against the currency of another country. Example: US Dollar vs. South African Rand (USD / ZAR).
Depending on the security type, FXFlat offers you more than 50 currency pairs in forex CFD trading and 6 currency pairs in the forex spot.
Example of Trading Forex CFDs in Practice
Suppose you think that the EUR / USD exchange rate will rise in the next few days and buy a CFD at a price of 1.0700. The CFD in this example equals 10,000 units in the base currency. Furthermore, we assume that the margin is one percent and you therefore have to deposit at the opening of the position a security deposit of 100 euros (0.01 x 10,000).
The euro is gaining against the dollar as expected and closing the position at 1.0750. There will be a difference of 0.0050 (1.0750-1.0700) between the opening price and the closing price of the position. The profit (and loss) is calculated on the basis of the exchange rate. In our case, you have made a profit of 50 dollars (0.0050 x 10.000). Once the profit has been realized, the position is converted into euros, which corresponds to an amount of approximately 46.51 euros. The value date (value date) is immediate.
Differences between Forex CFD and Forex Spot Trading
At FXFlat, you are in the comfortable position of trading currency either with classic forex CFDs or as a forex spot in the direct forex spot. In the following, we would like to show you the most important differences and features.
Forex CFDs are derivatives issued by an issuer with a fixed reference to a specific reference market.
By contrast, Forex Spot is the reference market itself and a cash transaction, ie the cash register. The forex spot price of a currency pair is determined by all market participants and not just by a single market maker or issuer as in CFDs.
Differences at a glance
|Forex Spot||Forex CFD|
|Spread||from 1.2||from 0.6|
|Trading times||00:00 a.m. - 10:00 p.m. CET||24h|
|Negative Balance Protection||Yes||Yes|
Important Terms in Forex Trading
The spread is calculated as the difference between the buying and selling value of a currency. This is a type of fee that FXFlat charges for each trade.
An overview of FXFlat spreads can be found on the following page: Contract Specification
Margin is a type of collateral that a trader deposits with a broker for a trade. The margin defines how high the maximum lever can be. If the margin for a bet of 10,000 euros at one percent, the trader must deposit 100 euros with his broker.
The margins at FXFlat can be found on the page: Conditions
The price interest point is a unit used for FX trading. With it, the price change of a currency pair can be specified.
Example: In the case of the euro-dollar exchange rate, a move from 1.2034 to 1.2035 dollars represents a pip. In dollar yen, a move from 105.43 to 105.44 yen is a pip.
The full lot (1.00) is a trading unit in currency trading. A lot usually stands for 100,000 units (in the respective base currency). If two lots are traded on the EUR / USD currency pair, it is about 200,000 euros.
FXFlat also offers mini lots with 10,000 (0.10) and micro lots (0.01) with 1,000 units. If a currency pair is quoted in the form of EUR / USD, the EUR is the base currency and the USD is the trading currency.
This makes it possible to achieve very high returns in FX trading.The lever multiplies the gain or loss on rising or falling prices after the purchase. FXFlat offers its customers different levers for different products. Depending on the size of the lever, appropriate collateral (margins) must be deposited. The lever indicates which capital investment is deposited as collateral for a specific position. The lower the safety performance, the higher the lever. The higher the lever, the higher the risk, since the security is used up proportionately faster.
- Margin call / margin requirement
A margin call is called a margin request. Only CFD Trading with the Account Type Professional Classic could cause additional interest - Standard- and Professional Plus clients are excepted (Account packages with FXFlat). This means that the customer must clear his account again, as long as there was an overdraft of the margin account during the exchange rate fluctuations.
In currency trading, different currency pairs have a wide variety of liquidity. This is significantly dependent on the demand of different currencies.If the demand is high (such as the EUR / USD) is usually offered a high liquidity. If the demand is rather low (such as the MXN / CZK) so liquidity is rather low. Price fluctuations are therefore enormous, so that Gaps could be possible.
A gap is between two quoted prices.
In highly liquid markets, the price is usually continuous (e.g. 1,13 – 1,14 – 1,15 - …).
In illiquid markets the price can jump too (e.g. 1,15 – 1,16 – 1,21 – 1,22 – 1,38 - …)
This may be at the expense of a stop order, e.g. then no longer exactly. One then speaks of slippage. Gaps can also occur between the close of trading (Friday evening) and the start of trading (Sunday evening).
Slippage is the difference between a desired course and the course to which it was actually run. If you have clicked on the price of 105 in a market order, you have the order to buy / sell at the next tradable price. However, if it is done at 106, the slippage is 1 point (difference between 105 and 106). Depending on the time of trading, this may be more pronounced (for example European night times - thin liquidity) or rather less at European lunchtime.
Depending on market conditions, FXFlat can lead to a positive or negative slippage.
The foreign exchange swap rate is defined as an overnight or rollover interest (credit or debit) for holding positions overnight in a forex trading or CFD deal.
A charge / reward on a swap depends on the interest rate differentials of the countries whose currencies are involved in the currency pair and whether it is a long or a short position. Each currency pair has its own swap rate. This is indicated in points. The amount of the debit / credit in the swap transaction depends on the respective position size.
Swap rates are dependent and therefore directly linked to the interest rate policy of the central banks and the liquidity of the markets for interbank loans.