Resources & Education
The Foreign Exchange market “FOREX” is the largest financial market in the world. Unlike many markets the Forex market is open 24 hours per day and has an estimated $4 Trillion plus in turnover every day. This tremendous turnover is a multiple of the combined turnover of the main worlds’ stock markets on any given day. This tends to lead to a very liquid market and thus a desirable market to trade.
Unlike many other securities (any financial instrument that can be traded) the Forex market does not have a fixed exchange. That is why it is referred in the market that that Forex is trading Over-the-Counter (OTC). It is primarily traded through banks, brokers, dealers, financial institutions and private individuals.
Trades in Forex were traditionally executed over the phone. Increasingly, however, and with the help of technology and the Web, Forex trades are getting executed over the Internet using especially developed trading platforms.
Although the foreign exchange market is the largest traded market in the world, its reach to the retail sector pales in comparison to the Equity and Fixed Income markets. This is in large part due to a general lack of awareness of Forex in the investor community, along with a lack of understanding of how and why currencies move. Adding to the mystique of this market is the lack of a physical central exchange.
Traditionally, access to the FX market was limited to the bank community that traded large blocks of currencies for commercial, hedging, or speculative purposes. It is only in the last few years that the smaller investor has been able to gain access to this market. Previously the large amounts of deposits required precluded the smaller investors. With the advent of the Internet and growing competition it is now easily within the reach of most investors.
Foreign Exchange (Forex) is the simultaneous buying of one currency and selling of another. Currencies are traded in pairs, for example – Euro/US Dollar (EUR/USD). Forex contracts offered by Alpha Capital International are also known as Contracts for Differences (CFDs) on Forex.
For active traders and investors, Forex should be no different than other investment products such as equities, commodities or fixed-income. Just like other investment alternatives, Forex offers investors a market where they can buy or sell an investment product.
The different currency combinations represent nothing more than the value of one currency versus the value of another. That relationship is represented by a single price. In foreign exchange, the price of a currency pair is the market’s expectations (at that time) of the value of that currency measured against another currency given the current and expected economic and political situation in the two economies.
The spread is the difference between the sell price (bid) and the buy price (offer).
Example of a Forex Trade
A spot forex trade is a straightforward (or outright) exchange of one currency for another. The spot rate is the current market rate or ‘cash’ rate.
As in most financial markets there is the buying and selling price also known as bid and offer price.
A broker is expected to quote simultaneously for his investors both a price at which he is willing to buy (the bid) and a price at which he is willing to sell (the offer). The difference between the two is ‘the spread’ and the broker’s profit. Alpha Capital International quote very competitive spreads to investors.
If you have the view that one currency will appreciate against another then you can buy that currency by selling the other.
Example: USD/CHF = 1.0530/1.0534
You can BUY Dollars and SELL SWISS FRANCS at the offer – 1.0534
You can SELL DOLLARS and BUY SWISS FRANCS at the bid – 1.0530
Trading in Forex, otherwise known as Contracts for Difference (CFDs) are leveraged positions. By definition therefore a gain or loss generated by a CFD position is a multiple compared to what would have been generated by a cash position with the same notional value.
Trading in CFDs has grown significantly in popularity around the world over recent years, the reasons for this can be summarised as:
All of the above advantages exist for other CFD instruments offered by Alpha Capital International such as Spot Gold and Silver, Futures Crude Oil and Natural Gas and Futures Indices and Currencies.
Going Long enables you to profit while the market is rising.
If the current price for EURUSD is 1.3780/1.3785 and you think EUR will rise versus the USD you buy it at 1.3785.
If you place an up (long) long position for 1 lot, for every point the EURUSD moves above 1.3785 you make $10 (assuming a leverage of 1:100).
For every point the market falls below 1.3785 you lose $10.
Going Short enables you to profit even in a falling market.
You have a view that the GBP versus USD (GBPUSD) is going down.
The quote is 1.5780/1.5785. You decide to take a down (short) position on GBPUSD at 1.5780.
To close your short position on GBP versus USD you buy GBPUSD back say at 1.5760 (1.5755/1.5760) then you profit would be 20 pips x 10 = $200. Example assumes you sold 1 lot GBPUSD at leverage of 1.100.
If GBP versus USD had risen to 1.5790 you would have lost $100.