Trade Forex
Forex trading means taking a position on how the exchange rate between two currencies will change. This page explains how currency pair CFDs work and the risks to understand before you trade them.
What is forex trading?
The foreign exchange (forex or FX) market is where currencies are bought and sold. It has no single central exchange: banks, businesses, institutions and individuals trade with each other through a global network, so prices are quoted almost continuously from the start to the end of the trading week.
Currencies are always quoted in pairs, such as EUR/USD. The first currency is the base currency and the second is the quote currency. The price shows how much of the quote currency is needed to buy one unit of the base currency.
A forex CFD is an agreement to exchange the difference in a currency pair's price between the time a position is opened and the time it is closed. You do not exchange, receive or hold the currencies themselves.
- Buy (go long) if you expect the base currency to strengthen against the quote currency.
- Sell (go short) if you expect the base currency to weaken against the quote currency.
- Price changes are usually measured in pips. For most pairs a pip is the fourth decimal place; for pairs quoted in Japanese yen it is usually the second.
- The value of a pip depends on the currency pair and the size of your position.
Types of currency pairs
Currency pairs are commonly grouped by how widely their currencies are traded.
Major pairs
Pairs that combine the US dollar with another widely traded currency, such as the euro, the Japanese yen or the British pound. They generally see the heaviest trading activity.
Minor pairs
Also called crosses, these pair two widely traded currencies without the US dollar, for example the euro against the British pound. Trading activity is usually lower than in the major pairs.
Exotic pairs
These combine a major currency with the currency of a smaller or emerging economy. They often have lower liquidity, wider spreads and sharper price swings.
Trading forex CFDs with Lotus FX
Long or short
You can open a position to buy if you expect the price to rise, or to sell if you expect it to fall. If the market moves against your position, you make a loss.
Platform
Positions are opened and managed on Lotus FX MT5. See Forex Trading Platforms to download it.
Leverage and margin
Leverage lets you open a position larger than the margin you deposit. It magnifies both gains and losses. More on leverage and margin.
What moves forex prices?
Exchange rates respond to many factors, and their effect can be hard to predict.
Interest rates
Central bank decisions and expectations about future interest rates can change demand for a currency.
Economic data
Reports on inflation, employment and growth can shift views on an economy and its currency.
Politics and events
Elections, policy changes, conflicts and trade disputes can cause sudden moves in exchange rates.
Market sentiment
When investors become more cautious or more willing to take risk, money can move between currencies quickly.
Risk warning: An investment in derivatives may mean investors may lose an amount even greater than their original investment. Anyone wishing to invest in any of the products mentioned in lotusfx.co should seek their own financial or professional advice. Trading of securities, forex, stock market, commodities, options and futures may not be suitable for everyone and involves the risk of losing part or all of your money. Trading in the financial markets has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the markets. Don't invest and trade with money which you can't afford to lose. Forex Trading are not allowed in some countries, before investing your money, make sure whether your country is allowing this or not.