Forex Education

Forex Education covers the Foreign Currency markets where you can buy or sell popular Currency Pairs such as the EUR/USD, GBP/USD and USD/JPY.

History

Forex, or FX, is a shortened term that describes the Foreign Exchange Market, a marketplace where the world's various currencies are traded. It is an interbank market which was created in 1971 when international trade transitioned from fixed to floating exchange rates. As a result of its incredible volume and fluidity, the FX market has become the largest and most significant financial market in the world.

  • Forex markets operate 24/5
  • There are standard instruments available to help you control risk exposure
  • Excellent Transparency: the Forex Market is transparent. you just need to keep yourself informed

The Exchange Rate

Forex plays the indispensable role of determining global exchange rates. The exchange rate is the number of units of one nation’s currency that must be exchanged in order to acquire one unit of another nation’s currency. A market exchange rate between two currencies is determined by the interaction of the official and private participants in the foreign exchange rate market.

Market Participants

The main participants in the Forex market are: central banks, commercial banks, financial institutions, hedge funds, commercial companies and individual investors.

With technological development, the World Wide Web has become a great trading facilitator, as it can provide individual investors and traders with access to all the latest Forex news, technology and tools.

Forex Trading Examples

Compiled below are Forex trading examples. Please note that these are just examples; be aware that trading Forex is speculative and involves significant risk.

EUR/USD

An investor deposits $100 000 in a Markets.com Trading Account and wants to trade EURUSD. The Trading conditions of EURUSD are shown below:

The investor expects EUR to gain against the USD and therefore decides to BUY EURUSD pair.

While the Minimum trading amount is 1000 €, client opens a €10 000 position.

Due to the leverage of 1:50 the investor is able to open a position worth 10 609.99 USD with a minimum equity of 53.03 USD. The initial margin that is needed to open the EURUSD position is 0.5%.

To maintain this position a maintenance margin of 0.1% is needed. If available equity drops below 10.61 $, this position will be closed automatically.

The current Price:

Since investor wants to BUY EURUSD, the position will open with the ASK price.

Value of purchased securities: (Quantity* Price) = 10 000 * 1.06109 = $ 10 609.9

Initial margin: (Quantity*Opening price*initial margin %) = 10 000 * 1.06109 * 0.50% = 53.05 USD

Maintenance margin: (Quantity*Opening price*maintenance margin %)= 10 000 * 1.06109 * 0.10% = 10.61 $

Required Margin: ((Quantity*Open Price)/Leverage) + Spread = ((10 000*1.06109)/50) + 0.0002 = 21.22 $

Once Investor opens this position, the open position will be reflected on his Equity, free Margin and Open P&L

Balance = Deposit ($100 000) + Sum of Realized Profit & Loss ($0)

Equity = Balance ($100 000) + Sum of Unrealized Profit & Loss ($-0.2)

Free Margin = Equity ($99 999.8) – Sum of Required Margin (21.22$)

Open P&L = Sum of P&L of all open position (-0.2$) + Sum of overnight swaps ($0)

Day 2

The market moved against the client and causes a negative P&L.

P&L (BUY) = (Current Price -Open Price)*Quantity = (1.05989- 1.06109)*10000 = - 12.00 USD

The price movement will be reflected permanently on clients Equity, free Margin and Open P&L

Balance = Deposit ($100 000) + Sum of Realized Profit & Loss ($0)

Equity = Balance ($100 000) + Sum of Unrealized Profit & Loss ($- 12.00)

Free Margin = Equity ($ 99 988) – Sum of Required Margin (21.22$)

Open P&L = Sum of P&L of all open position (-12.00$) + Sum of overnight swaps ($0)

Day 3

The US Non-Farm Payroll numbers came out worse than expected – unemployment rate is rising. The EUR gains 55 pips during the news and EURUSD jumps to 1.06519.

Investor decides now to close the position and take the profits.

Realized profits: (Closed Price – Open Price) * Quantity = (1.06519-1.06109)*10000 = $ 41.00

Client made a profit of 41.00$.

Balance = Deposit ($100000) + Sum of Realized Profit & Loss ($ 41.00)

Equity = Balance ($10041) + Sum of Unrealized Profit & Loss ($0)

Free Margin = Equity ($10041) – Sum of Required Margin ($0)

Open P&L = Sum of P&L of all open position (0$) + Sum of overnight swaps ($0)

Trading CFDs carries risk and could result in the loss of your deposit, please trade wisely. Read full Risk Disclosure.
Please note that the materials are offered for promotional purposes and do not entail any obligation to purchase investment services from the firm.