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Forex Trading

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FOREX TRADING

Forex is the largest and most liquid market in the world with an average daily turnover of $4.98 trillion. The Forex market is open 24 hours a day, 5 days a week with the most important world trading centers being located in London, New York, Tokyo, Zurich, Frankfurt, Hong Kong, Singapore, Paris, and Sydney. Trading is said to be conducted ‘over the counter’; it’s not like stocks where there is a central marketplace with all orders processed like the NYSE.

How Does Forex Trading Work?

When trading Forex, you always speculate on whether the price of the base currency will rise or fall against the counter currency. So in GBP/USD if you think GBP will rise against USD, you go long (buy) the currency pair. Alternatively, if you think GBP will fall against USD (or that USD will rise against GBP), you go short (sell) the currency pair. If you were right (that is if you went long GBP/USD and GBP went up in value against USD), you would make a profit. If the trade went against you, however, you would make a loss. You can trade forex using leverage, which allows you to increase your potential profit, but it also increases your potential loss.

Currency Pairs

Forex is always traded in currency pairs, for example EUR/USD. The first currency (EUR) is called the ‘base currency’. The second currency (USD) is known as the ‘counter currency’. The way currencies are displayed shows us how many units of the counter currency you can buy with one unit of the base currency. This is the exchange rate, or in other words, how many US dollars you can buy for one euro. You can trade CFDs on over 300 currency pairs via our platform. Currency pairs can generally be divided into three groups: major, minor and emerging.
Capital One offers several products for trading in foreign exchange. These include spot deals, forward contracts, currency swaps and FX option strategies. Capital One Asset Management solutions protect clients from adverse exchange rate movements in order to protect their margins.
Major:
Most of these pairs contain the US dollar as either the base or counter currency. They are the most frequently traded. Major currencies pairs include EUR/USD, GBP/USD and USD/CAD.
Minor:
Currency pairs which do not contain the US dollar are known as minor currency pairs. Examples include EUR/GBP, EUR/CHF, GBP/JPY and CHF/JPY.
Emerging:
Also known as exotic pairs, these are made up of a major currency paired with an emerging or small but strong economy. Emerging currency pairs include USD/NOK, USD/HKD and EUR/CZK.