Forex Trading

Introduction to Forex Trading

Forex (aka the snappy version of ‘Foreign Exchange’ and ‘FX’) is the biggest financial market in the world, with transactions totalling trillions (more zeros than you can count on your fingers!) of dollars happening every day.

Whilst other methods of trading have a central exchange, Forex trading can be done through banks, dealers and brokers, making it an international, 24/5 event, or ‘decentralised’ as the men in suits call it.

But, what does ‘Forex trading’ actually mean? Well, it’s ‘the buying and selling of global currencies’ with the goal of making a profit, and it can be performed by both businesses and individuals – that’s you! Also, did you know that spread betting is exempt from Capital Gains under current UK tax law?*

Being a global market, Forex prices are easily influenced by:

1. Inflation

2. Interest rates

3. Government policy

4. Employment figures

5. Demand for imports and exports

As there are so many traders and so much money exchanging hands, price fluctuations can occur rapidly, making Forex trading extremely fast-paced and volatile.

If you already know the basics, why not jump ahead to our Forex Market page?

*Tax laws are subject to change and depend on individual circumstances.

How to trade Forex

Now you know what Forex trading is, you might be keen to have a go yourself. But, how do you trade Forex? And what should you look out for?

First of all, you need to get a trading platform. At Core Spreads, you can trade Forex on our CoreTrader platform for spread betting (currently exempt from Capital Gains Tax*).

Secondly, you need to decide which currency pair you want to trade. At Core Spreads, we have over 30 pairs available on both our platforms. When choosing which pair you want to trade, there are a few elements that you should think about:

• How stable or unstable is that country? A country’s political and economic stability relates directly to the value of their currency.
  
  
• Are there any big announcements coming in relation to that country? Factors such as elections, an announcement on interest rates or economic data releases can create volatility, resulting in price fluctuations.
  
  
• The USD acts as a global economic barometer – if the US economy is doing well, you can assume their major trading partners are benefitting to some degree, and vice versa.
   

During times of stability, there won’t be many price fluctuations within the pair, so chances at making a profit are smaller.

When things are turbulent (or if you’re trading with minor or exotic currencies), prices can rise and fall dramatically, increasing your chance to make gains, but also the likelihood of making losses – you need to stay on your toes!

*Tax laws are subject to change and depend on individual circumstances.

Forex Trading Dictionary

At Core Spreads, we know that there can be lots of jargon in trading, regardless of what markets you’re interested in. To help you get to grips with Forex, we’ve compiled a glossary of key phrases. After all, it pays to start with the basics:

• Forex – the abbreviation of ‘Foreign Exchange’, also known as ‘FX’. It’s the world’s biggest financial market, where traders convert one currency into another
  
  
• Forex trading – the buying and selling of global currencies, all with the aim of making money
  
  
• Spread betting Forex - a method of trading which gives you the opportunity to profit from the rise or fall of a pair without having to own the underlying asset. As it's classified as a 'bet', profits are tax free under current UK law. Although, tax laws can, of course, change!
  
  
• CFD trading Forex - similar to spread betting in almost all respects, but you’re trading in a number of 'lots' instead (and, depending on your financial circumstances, you may be subject to Capital Gains Tax)
  
  
• Bid price - the best price at which you can Sell the currency pair
  
  
• Offer price - the best price at which you can Buy the currency pair. This is also referred to as the 'Ask' price
  
  
• Spread - the difference between the Buy and Sell price
  
  
• Spot Forex Market – two parties (either two people or two businesses) agree to buy one currency pair against the sale of another at a specified price
  
  
• Currency pair – also known as ‘pairs’. These are the two currencies that you wish to exchange. The value of one is compared against the other, hopefully resulting in a profit
  
  
• Major pairs – the most popular currency pairs. These pairs represent around 80% of global Forex trading, and include EUR/USD, USD/JPY and GBP/USD
  
  
• Minor pairs – these currency pairs are traded less often, and usually don’t involve the USD
  
  
• Exotic/emerging pairs – a currency pair that features one major currency and another from a smaller economy, such as USD/TRY – that’s the US Dollar versus the Turkish Lira
  
  
• Regional pairs – when currencies from regions in a similar geographical area are set against each other
  
  
• Base currency – the first currency in the pair, shown on the left of the pair
  
  
• Quote currency – the second currency in the pair, shown on the right of the pair
  
  
• Going short – selling the pair because you think the base currency will weaken against the quote currency
  
  
• Going long – buying the pair because you think the base currency will strengthen against the quote currency
  
  
• Pip – the abbreviation of ‘price interest point’ (see, much easier to say!), this is the unit used to measure currency movement. It usually shown as the 4^th decimal point
  
  
• Buy and sell price – the two prices given regarding a specific currency pair
  
  
• P & L – this stands for ‘Profit and Loss’, and it’s used by traders to work out the daily fluctuations in a currency’s value
  
  
• Notional principle – how much the trade is valued at
  
  
• Signals – these are helpful indicators that help you to work out the right time to trade a pair
  
  
• Exchange rate – the rate at which one currency can be exchanged for another