Forex CFDs

A market that doesn’t sleep

Foreign exchange (forex) or FX trading involves trading the prices of global currencies, and at FOREX.com it is possible to trade on the prices of a huge range of global currencies using CFDs. Currency trading allows you to speculate on the movement of one currency against another, and is traded in pairs, for example the euro against the US dollar (EUR/USD).

Currency markets are open 24 hours a day. There is no central exchange for trading Forex: instead prices are determined by interbank trading, the exchange of currencies between banks on a constant basis, all over the world.

The currency market is much bigger than share markets. The daily volume of global forex markets is estimated at over $6 trillion.

What moves currency markets?

• Economic data - This particularly affects critical areas of a country’s economy like inflation, unemployment numbers, foreign trade or payrolls.
• Central banks - These can have a big influence over the performance of currencies, for example by changing interest rates or printing more money. Central banks can also buy and sell their own currency in order to keep it trading within a certain level.
• Political factors - Increasingly, political uncertainty can drive currency markets. For example, the Swiss Franc has traditionally been seen as a safe haven currency. Something as banal as a speech by a finance minister can have a big impact on a currency.

Currency pairs

Currencies are traded in pairs – this means you can only trade one currency against another. You can’t trade a currency in isolation. Each currency has its own three letter code, for example, the US Dollar is abbreviated to USD.

An example of a major currency pair is the USD/JPY pair.

If traders are positive on the prospects for the Yen, they would expect overall number to go down – i.e. the Yen would be getting stronger against the Dollar. Traders would be buying less Yen with a Dollar as the Yen got stronger. Similarly, if the Yen was expected to weaken, forex traders would expect the Yen number to go up, reflecting the fact that the dollar could buy more yen.

Currency markets never decline in absolute terms – for one currency to go up, there will be others weakening against it. All currencies cannot go up at the same time. There is always going to be a loser.

Who trades currency markets?

Currency markets are important to a broad range of participants, from banks, brokers, hedge funds and investor traders who trade forex (FX). Any company that operates or has customers overseas will need to trade currency. Central banks can also be active in currency markets, as they seek to keep the currency they are responsible for trading within a specific range.