How to trade forex
Want to know what a forex trade looks like? This section details the different ways you can trade currencies and how to place a forex trade on our platform.
What is spot forex?
At FOREX.com, all our forex markets are traded via contracts for difference (CFDs) and are on spot markets, meaning you trade them based on their current cash price. You'll be able to choose from a variety of currency pairs to trade 24 hours a day, ranging from majors to minors to exotics.
Three things you should know about forex CFDs
Forex CFDs are leveraged
It is important to remember that you are not actually trading the currency itself, but instead using CFDs, a derivative product, to speculate on rising and falling price movements.
And because it’s leveraged, you don’t have to stump up the full deposit for the trade. But remember, leverage is a double-edged sword that can either magnify your profits or your losses.
You are not going to receive the currency you are trading
When trading forex CFDs, you’re not trading in the actual physical currencies. So when you buy USD/JPY, you are not going to take delivery of any Japanese yen. Similarly, if you trade EUR/USD, you will not receive any US dollars. This is because you are trading a contract on the currency, not the currency itself.
When you close your trade, any profit or loss is realised in the currency of your account.
You can either earn or incur rollover payments
There is technically a delivery date for you to receive the currency, but it is always ‘rolled over’ onto the next day.
When you hold a position overnight, you are either charged or credited with a rollover fee (also known as a financing charge). These fees fluctuate daily and are different for long and short positions.
You can find the rollover fee for you market in the ‘Financing Charges’ section of our platform.
More on rollover fees and swap rates A rollover fee is calculated using a swap rate. The swap rate is measured by the difference in interest rates between the two currencies. We source the swap rate from major financial institutions which base it on a variety of factors such as inflation and key technical indicators. |
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How to place a forex trade
A step-by-step guide on how to trade EUR/USD using CFDs on our Web Trader platform.
Step 1
You research the forex markets. You see on the news that the European Central Bank has reported strong economic growth and will increase interest rates. You also notice that the US economy has not performed as well as expected recently.
This leads you to believe that the euro will rise against the dollar.
You decide to buy EUR/USD.
Step 2
To place your trade:
- Log into the FOREX.com web platform
- Select the ‘Browse Markets’ tab, or use the 'Search' function and enter 'EUR/USD'
- Choose ‘EUR/USD’ to launch the deal ticket
Already you can see the ‘SELL’ and ‘BUY’ buttons in the top right of the screen. Selecting either of these will open the deal ticket and enable you to choose how much you want to trade.
Step 3
But first, we will select ‘Market info’. This will give you all the information about the market – from charting tools and news in one convenient place.
It will also give you easy access to details such as the financing charges which we will come back to later.
Step 4
To buy EUR/USD, select the green ‘Buy’ button. This will open the deal ticket.
In the quantity section, you enter how many US dollars you want to buy.
You enter 10,000, also known as one 'mini-lot'.
Remember, FX CFD trades use leverage and EUR/USD is traded at a leverage of 20:1 (which corresponds to a 5% margin requirement). This means you don’t have to put up the full value of the trade to open the position - which would be $10,938.80 - but deposit a fraction of this amount instead. In this example, your margin requirement would be $546.94.
Our intuitive deal ticket calculates and displays your margin requirement above the 'place trade' button.
- In the quantity bar, enter ‘10,000’
- Select ‘Place Trade’
Congratulations. You bought 10,000 USD at a rate of 1.09388
Step 5
Your intuition proves correct. A day later the euro rises 10 pips to 1.09488.
What is a pip? A pip is the smallest amount a forex pair can move. It is the fourth figure after the decimal point e.g. 1.109388 For example, if EUR/USD rose from 1.09388 to 1.09398, this would be an increase of 1 pip. The fifth figure after the decimal point is a fractional pip. A fractional pip is just one tenth of a pip. |
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You decide it’s time to close your trade and take your profit.
- Log into the FOREX.com web platform
- Select the ‘Standard Workspace’ tab
- Choose ‘Close’ in the ‘Positions’ subtab
Step 6
This will launch the deal ticket, which will show you that you will make a $10 profit if you close the trade at 1.09488.
To close your trade, simply select ‘Close Position’.
Alternative scenario
However, no trader gets it right every time. The EUR/USD could’ve dropped 10 pips to 1.09288.
In this instance, you would have made a loss of $10.
Rollover payments
Earlier, we talked about rollovers payments. And because you held the trade overnight, you incurred a small fee.
In the ‘Financing Charges’ section, the financing charge for your long EUR/USD position is listed as -0.52USD.
Therefore, you were charged 52 cents for holding the trade overnight.
Where do I find the rollover fee for EUR/USD?
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