FX trading allows you to speculate on the changes in currency strengths over time, trading currencies and buying or selling one against the other. Forex traders seek to profit from fluctuations in the exchange rates between currencies, speculating on whether one currency’s value, like the pound sterling, will go up or down in relation to another, such as the US dollar. the foreign exchange market is the most traded in the world.
How does forex trading works?
Forex is always quoted in pairs, in terms of one currency versus another. The fluctuations in the exchange rate between these two are where a trader looks to make their profit. The first currency, also known as the base is the one that you think will go up or down against the second currency, which is known as the quote. When trading currencies, you can speculate on the future direction of the market, taking either a long (buy) or short (sell) position depending on whether you think the currency’s value will go up or down.
A margined product
Also known as leveraged trading, this means you can put up a small amount of money to control a much larger amount. This means you can leverage your money further but it also means that losses will be magnified as well, so you should manage your risk accordingly – please ensure that you fully understand the risks of leveraged trading.
Which currency pairs?
Commonly traded currency pairs are traditionally divided into three groups related to popularity and liquidity: majors, minors, and exotics. At City Index, you can trade over 65 currency pairs including majors, minors, and exotics.
- Majors – These are the most liquid currencies (most actively traded) constituting about 85% of total trading volume in the FX markets. The spreads for these are usually tighter compared to the less traded minor currency pairs.
- Minors – These are not traded as heavily as the major currencies, and so tend to fluctuate more often. Spreads for minor currency pairs also tend to be wider due to the medium-sized liquidity in the market, as compared to major currency pairs.
- Exotics – These are currency pairs that are only very rarely traded CFDs. Due to the low volumes of trade, exotic currency pairs are illiquid and tend to be expensive to trade with wider spreads. Many traders view exotic currency pairs as having higher risk profiles compared to commonly traded currency pairs.