What is Forex Exchange?
Foreign Exchange (FX) is the largest, most liquid, market in the world. Larger than the shares and futures markets combined, every day over $5.3 trillion of FX transactions is traded globally. Forex trading is the act of simultaneously buying one currency while selling another, primarily for the purpose of speculation. Currency values rise (appreciate) and fall (depreciate) against each other due to a number of factors including economics and geopolitics. The common goal of forex traders is to profit from these changes in the value of one currency against another by actively speculating on which way forex prices are likely to turn in the future.
What is a lot?
One lot in the MT4 is equal to 100,000 units of currency. BlackPearlFX accounts offers a minimum lot size of 0.01 which means that a 0.01 of a lot traded is equal to 1,000 units of currency (i.e. A 0.01 lot on EURUSD is equal to 1,000 USD position. Account holders can, however place trades of different sizes, as long as they are in increments of 1,000 units like 2,000; 6,000; 18,000; 114,000.
What is a pip?
A pip is the unit you count profit or loss in. Most currency pairs, except Japanese yen pairs (which is quoted in 3 decimals), are quoted in five decimal places. The fourth spot after the decimal point (at one 100th of a cent) is typically what one watches to count “pips”. Every point that place in the quote moves is 1 pip of movement. For example, if EUR/USD rises from 1.40220 to 1.40270 EUR/USD has risen 5 pips.
Margin can be thought of as a good faith deposit required to maintain open positions. This is not a fee or a transaction cost, it is simply a portion of your account equity set aside and allocated as a margin deposit. Keep in mind that trading on margin can both positively and negatively affect your trading experience as both profits and losses can be dramatically amplified.
Why trade Forex ?
Forex is the most liquid market in the world, meaning that forex market spreads tend to remain tight throughout most of the day, whilst traders have the safety of the knowledge that positions and orders can always be executed. With an average turnover in excess of $5.3 trillion per day being traded by governments, central banks, financial institutions, corporations and professional and retail traders, foreign exchange is the largest financial market in the world.
Leverage Risk Warning
Trading Forex (foreign exchange) on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. In fact due to the very nature of leveraged FX/CFD trading you could incur losses that are greater than the funds deposited with us.
You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts.
Depending on your trading strategy whether manual, or an automated trading strategy, please ensure you test such a strategy initially in the demo environment. Past performance is no guarantee of future results. Trading conditions change constantly.
Leverage allows traders the ability to enter into a position worth many times the account value with a relatively small amount of money. This means that the investment you make with could be extinguished quickly and losses could possibly exceed your initial deposit. Market movements can be volatile and unpredictable. Leverage can therefore work to your advantage or against you. A decrease in liquidity would also mean that quotes may be unobtainable which would create further losses and we may decide to suspend trading. Gapping is another feature that can create losses and arises where there is a significant change to the price offered between quotes. Gapping may occur in fast and falling markets or if price sensitive news is released and prices increase with very strong momentum.
The Forex market offers traders the ability to use a high degree of leverage, trading with high leverage may increase the losses suffered.