Forex Trading

What is forex trading?

The forex market is the largest and most liquid market in the world. Forex trading involves purchasing one currency while simultaneously selling another.

Often called FX trading or foreign exchange trading in the financial world, forex trading allows you to speculate on exchange rate movements, diversify your investment portfolio, or hedge against currency risks when buying a property abroad, for example.

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How does it work?

Political and economic news can often impact currencies. These lead to fluctuations in prices on a daily basis. This gives forex traders a chance to benefit.

When forex trading, two currencies are usually quoted against each other and are referred to as a currency pair. The base currency is the currency that the exchange rate is quoted against. The other currency that makes up the pair is known as the quote currency. For example, the EUR/USD currency pair is the euro (the base currency), against the US dollar (the quote currency).

This feature distinguishes forex trading from other asset classes. If you decide to sell the currency pair, you do so at the bid price, whilst you would buy the currency pair at the ask (or offer) price.

What are spread, pips and margin?

The difference between the bid and ask (or offer) price is the spread.

A pip is the smallest unit of measurement in a currency pair’s price movement. Currency pairs move in fractions of a pip and will vary amongst the different currency pairs we offer.

A margin is the minimum amount of collateral you need to post with your broker. This varies from one currency pair to another.

Market Information

Pair Spread from Margin from Trading Hours
EUR/USD 0.9 3.3% Sun 22:00 to Fri 22:00
GBP/USD 1.4 3.3% Sun 22:00 to Fri 22:00
USD/JPY 1.1 3.3% Sun 22:00 to Fri 22:00
EURNOK 22.2 5% Sun 22:00 to Fri 22:00
EURSEK 21 5% Sun 22:00 to Fri 22:00
AUDNZD 4.8 5% Sun 22:00 to Fri 22:00
USDTRY 24.8 5% Sun 22:00 to Fri 22:00
USDMXN 33 5% Sun 22:00 to Fri 22:00
USDZAR 43.7 5% Sun 22:00 to Fri 22:00
Market Info Sheet Market Info Sheet (Spread Betting)

 

FOREX TRADING EXAMPLES

GBP VS USD (CFD): Buying one lot

When you hold a CFD or spread bet account with ADSS, you trade forex in lots. We offer standard, mini and micro lots, where each lot has a size of 100,000, 10,000 and 1,000 of the first named currency respectively.

Let’s say you think the GBP will strengthen against the US dollar, so you decide to go long, i.e. buy the GBP/USD currency pair.

The pair is currently quoted at 1.2915-1.2916. The spread is the difference between 1.2915 and 1.2916, or one pip. Since you are looking to go long by one standard lot, (let’s say 100,000 GBP), you will be buying at the ask (or offer) price of 1.2916.

One week later, the pair is quoted at 1.3015-1.3016 and you decide to take your profits by closing your position and selling GBP/USD at 1.3015.

The profit for the trade is therefore 1.3015-1.2916 * 100,000, which is 99 pips. This equates to a monetary profit of $990. The profit is always in the second-named or the quote currency. 

There will be holding costs incurred when forex trading. This will be the difference between the interest rates in the currency pair. You should always ask your broker for these costs before you trade.

To learn how to start, visit the ADSS Education Centre.

EUR VS USD (CFD): Selling one lot

Let’s say you think the euro will weaken against the US dollar, so you decide to go short, i.e. sell the EUR/USD currency pair.

The pair is currently quoted at 1.1601-1.1602. The spread is the difference between 1.1601 and 1.1602, or one pip. Since you are looking to go short by one standard lot, i.e. 100,000 EUR, you will be selling at the bid price of 1.1601.

One week later, the pair is quoted at 1.1700-1.1701 and you decide to take a loss by closing your position, i.e. buying EUR/USD at 1.1701.

The loss for the trade is therefore (1.1601-1.1701 * 100,000), which is 100 pips. This equates to a monetary loss of $1,000.

The profit is always in the second-named or the quote currency. 

There will be a holding cost incurred when forex trading. This will be the difference between the interest rates in the currency pair. You should always ask your broker for these costs before you trade.

Try trading forex risk-free with a demo trading account and access our free professional trading platforms, guides and webinars.

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