Forex trading, also known as foreign exchange trading or currency trading, is where an investor tries to make money by buying and selling currencies on the foreign exchange market. Most investors will follow trends and use strategies to optimise their return. This is a very basic definition that does not reflect the full complexity of Forex trading; our free workshops are ideal for people who are unfamiliar with the concept and want to quickly achieve an in-depth insight into how this all works.
GAIN Capital recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment further CFD investors do not own or have any rights to the underlying assets.
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Currency markets are important to a broad range of participants, from banks, brokers, hedge funds and investor traders who trade FX. Any company that operates or has customers overseas will need to trade currency. Central banks can also be active in currency markets, as they seek to keep the currency they are responsible for trading within a specific range.
If you believe that a currency pair such as the Australian dollar will rise against the US Dollar you can place a buy trade on AUD/USD. If the prices rises, you will make a profit for every point that AUD appreciates against the USD. If the market falls, then you will make a loss for every point the price moves against you. Our trading platform tells you in real-time how much profit or loss you are making.
Not all securities can be bought on margin. Buying on margin is a double-edged sword that can translate into bigger gains or bigger losses. In volatile markets, investors who borrowed from their brokers may need to provide additional cash if the price of a stock drops too much for those who bought on margin or rallies too much for those who shorted a stock. In such cases, brokers are also allowed to liquidate a position, even without informing the investor. Real-time position monitoring is a crucial tool when buying on margin or shorting a stock.
If traders are positive on the prospects for the Yen, they would expect the number on the right to go down – i.e. the Yen would be getting stronger against the Dollar. Traders would be buying less Yen with a Dollar as the Yen got stronger. Similarly, if the Yen was expected to weaken, forex traders would expect the Yen number to go up, reflecting the fact that the dollar could buy more yen.