What is FOREX trading and CFD trading
What is FOREX trading and CFD trading
What is FOREX trading?

Under normal circumstance, FOREX trading is the exchange of one currency into another currency in the OTC market at the agreed exchange rate. FOREX market is the most actively traded market in the world, with an average daily trading volume of more than $4 trillion.

In essence, FOREX trading refers to the act of speculating buying and selling a currency at the same time. The rise in currency monetary value (appreciation) and decline (depreciation) are the result of a series of interacting factors.

Unlike most financial markets, the OTC FOREX market has no specific location or central exchange. It can be traded 24 hours a day through a global network of corporations, banks and individuals.

FOREX is the most liquid market in the world, which means that FOREX market spreads tend to tighten over most of the day, and brokers have a certain level of adequate knowledge to be able to execute positions and orders whenever possible. The average daily turnover of governments, central banks, financial institutions, corporations and professional retail investors is as high as $4 trillion. FOREX is the world's largest financial market. In contrast, the New York Stock Exchange's daily turnover is about $50 billion.

24 Hours FOREX Trading

FOREX price is available within 24 hours a day, which helps to ensure that there are very few price gap (no trading between two prices), to ensure that traders can create positions at any time. Although in fact, at certain times, trading volume is lower than the average daily trading volume, resulting in an increase in market spreads.

Leverage

FOREX trading is a margin product, which means that you only need to deposit a small portion of the total trade value of the position to trade FOREX transactions. This means that profits or losses are significantly higher than the initial capital expenditures compared to traditional transactions.

Pricing

All FOREX is quoted in one currency and another currency. Each currency pair has a “base” currency and a “quote currency”. The base currency is on the left of the currency pair and the quote currency is on the right of the currency pair. For example, in the “EUR/USD”, EUR is “base” currency and USD is the “quote” currency. FOREX price changes are triggered by currency appreciation (strengthening) and depreciation (weakening). If the EUR/USD price falls, this indicates the appreciation in quote currency (USD) and the base currency (EUR) depreciates.

In FOREX pricing, if you expect the base currency will appreciate relative to the quote currency, then you should BUY the currency pair. Conversely, if the base currency is considered to be depreciated against the quote currency, this currency pair should be SELL by trader. An example of major currency pairs as follows:

EUR/USD (value of 1 euro in US dollars) USD/CHF (value of 1 dollar in Swiss francs)

Price Interest Point (Pip)

Pip refers to price movement of FOREX rate. Most of our currency groups are quoted in five decimal places, and the change in price from the fourth decimal place is called a “point”. For example, if the price of the EUR/USD pair changes from 1.41800 to 1.41920, it means an increase of 12 pips (92-80=12). Spread is the difference between the buying and selling price of the currency pair.

Another example is the EUR/USD trading price is 1.41800/41806 (in this case, the spread is 0.6pips or 0.00006). There is an exception for yen pairs, which quotes only two digits after the decimal point. The USD/JPY trading price is 76.41/76.44, with a spread of 3 pips.

FOREX prices are affected by different factors from international trade or investment flows to economic or political conditions. This is why FOREX trading is so interesting and exciting. High market liquidity means that prices can respond promptly to changes in news and short-term events, creating numerous trading opportunities for FOREX retail traders.

What is CFD trading?

CFD is a derivative trading instrument that provides trading opportunities for a wide range of financial markets including FOREX, indices and commodities, based on price fluctuations. All these financial products can be traded in one account.

How CFD trading works?

When you trade in CFD, you do not need to buy or sell the underlying asset (for example: stocks, currency pairs, or commodities). We offer CFD in many markets around the world, you can buy or sell any certain units of specific products or financial products depending on your price expectation is going up or down. We have a wide range of products including stocks, bonds, currency pairs, commodity indices and stock indices, such as UK 100 index, which aggregates stock price movements in the FTSE 100 index.
If the price of a financial product changes is in your favor, for each pip of movement you will earn income based on the multiple of your trading volume. If price movement of financial product changes against you, you will lose money. Keep in mind that the loss may exceed your margin.

CFD Trading Leverage and Margin

CFD is a leveraged product, which means that you only need to deposit a small percentage of the full amount of transaction then you can open a position, that is “margin trading” (or “margin requirement”). Margin trading will amplify the gain and will also amplify the loss, due to the profit and loss is based on the full value of the position, which means that you might loss more than your deposited capital.