When you trade in the foreign exchange spot market (where trading happens immediately or on the spot), you are actually buying and selling two underlying currencies. All currencies are quoted in pairs, because each currency is valued in relation to another. For example, if the EUR/USD pair is quoted as 1.2200 that means it takes $1.22 to purchase one euro.
If you are a rookie trader, you may find yourself asking questions such as 'what is leverage in Forex trading?' and 'how can it be useful?' This article will provide you with answers to these types of questions, together with, a detailed overview of Forex leveraging, its advantages and disadvantages, and a list of possible applications and restrictions.
Map out the magnitude of price moves with Retracements and Arcs. These tools let you draw studies about the possible developments of a price based on its previous move. It can be calculated following different mathematical concepts (Fibonacci, Gann…). While retracements are concerned with just the magnitude of moves, Arcs factor both magnitude and time, offering areas of future support or resistance that will move as time progresses. How to add Retracements and Arcs
Risk warning: Trading Forex (foreign exchange) or CFDs (contracts for difference) on margin carries a high level of risk and may not be suitable for all investors. There is a possibility that you may sustain a loss equal to or greater than your entire investment. Therefore, you should not invest or risk money that you cannot afford to lose. Before using Admiral Markets UK Ltd, Admiral Markets Cyprus Ltd or Admiral Markets PTY Ltd services, please acknowledge all of the risks associated with trading.
In every foreign exchange transaction, you are simultaneously buying one currency and selling another. In effect, you are using the proceeds from the currency you sold to purchase the currency you are buying. Furthermore, every currency in the world comes attached with an interest rate set by the central bank of that currency's country. You are obligated to pay the interest on the currency that you have sold, but you also have the privilege of earning interest on the currency that you have bought. For example, let’s look at the New Zealand dollar/Japanese yen pair (NZD/JPY). Let’s assume that New Zealand has an interest rate of 8% and that Japan has an interest rate of 0.5% In the currency market, interest rates are calculated in basis points. A basis point is simply 1/100th of 1%. So, New Zealand rates are 800 basis points and Japanese rates are 50 basis points. If you decide to go long NZD/JPY you will earn 8% in annualized interest, but have to pay 0.5% for a net return of 7.5%, or 750 basis points.
Leveraged trading in foreign currency or off-exchange products on margin carries significant risk and may not be suitable for all investors. We advise you to carefully consider whether trading is appropriate for you based on your personal circumstances. Forex trading involves risk. Losses can exceed deposits. We recommend that you seek independent advice and ensure you fully understand the risks involved before trading.
Leverage in finance pertains to the use of debt to buy assets. This is done in order to avoid using too much equity. The ratio of this debt to equity is the formula for leverage (debt/equity ratio) whereby the greater the proportion of debt, the higher the amount of leverage. If a company, investment or property is termed as "highly leveraged" it means that it has a greater proportion of debt than equity. When leveraged debt is used in such a way that the return generated is greater than the interest associated with it, then an investor is in a favourable position.
Finally, it is important to note that in leveraged forex trading, margin privileges are extended to traders in good faith as a way to facilitate more efficient trading of currencies. As such, it is essential that traders maintain at least the minimum margin requirements for all open positions at all times in order to avoid any unexpected liquidation of trading positions.
All forex trades involve two currencies because you're betting on the value of a currency against another. Think of EUR/USD, the most-traded currency pair in the world. EUR, the first currency in the pair, is the base, and USD, the second, is the counter. When you see a price quoted on your platform, that price is how much one euro is worth in US dollars. You always see two prices because one is the buy price and one is the sell. The difference between the two is the spread. When you click buy or sell, you are buying or selling the first currency in the pair.
Forex, also known as foreign exchange, FX or currency trading, is a decentralized global market where all the world's currencies trade. The forex market is the largest, most liquid market in the world with an average daily trading volume exceeding $5 trillion. All the world's combined stock markets don't even come close to this. But what does that mean to you? Take a closer look at forex trading and you may find some exciting trading opportunities unavailable with other investments.
Currencies are traded on the Foreign Exchange market, also known as Forex. This is a decentralized market that spans the globe and is considered the largest by trading volume and the most liquid worldwide. Exchange rates fluctuate continuously due to the ever changing market forces of supply and demand. Forex traders buy a currency pair if they think the exchange rate will rise and sell it if they think the opposite will happen. The Forex market remains open around the world for 24 hours a day with the exception of weekends.