What is Forex trading?

The forex market is the largest and most liquid financial market in the world. It trades 24-hours a day, 5 days a week, which makes it a popular market for traders across the globe, regardless of their time zone.

The forex market is also referred to as foreign exchange, FX or currency market, and traders use these terms interchangeably.

What makes forex unique against other financial assets is that the speculator is effectively entering two markets at the same time. This means that FX markets come in “pairs”, and they are buying one currency and selling another. The easiest way to look at a currency pair is that it represents a ratio between two markets.

The most traded currency pairs are the FX majors, which include EUR/USD, GBP/USD, AUD/USD, USD/CHF, USD/JPY and USD/CAD. Yet FX crosses such as GBP/JPY, EUR/GBP and EUR/JPY are also popular pairs due to their higher levels of volatility.

How Can You Trade Forex?

How Can You Trade Forex?

ThreeMarkets provide access to the spot forex market via CFDs (Contracts for Difference) which is a form of derivative. This allows us to provide our clients with considerably lower margin requirement, making it more affordable to open a trade.

And as they are CFDs, the trader is not buying or selling actual currencies on the exchange, as CFD pricing is a derivative of the underlying market. But this means traders can easily enter markets long (buy) and short (sell) to trade bullish or bearish markets.


Forex Trading Example

Entering a trade
long EUR/USD

The exchange rate between the European dollar and US dollar (EUR/USD) is 1.2140. A trader expects EUR/USD to rise in value, so they enter long (buy) one full contract, which is equivalent to €100,000.

The trader also places a protective stop loss at 1.2020, and a take profit at 1.2140.

Exiting a trade
A profitable example

Over the next couple of days EUR/USD rises to 1.2285 and triggers the take profit order, which automatically closes the trade to book a profit for the trader.

The traders realised a gain of €1,450.
€100,000 x (1.2285 – 1.2140) = -€1,450

Exiting a trade
A loss example

Instead of rising as the trader had hoped, EUR/USD depreciates in value and triggers the protective stop loss.

The trade is closed at a loss of €1,200.
€100,000 x (1.2020 – 1.2140) = -€1,200