Learn about forex trading with these frequently asked forex questions. For further details, please refer to our Contract Details.
What is forex?
Forex is an over-the-counter (OTC) market (which means it doesn't have a central exchange) for trading currencies. It is also the world's most liquid and traded market, open 24-hours a day.
Forex trading is also known as foreign exchange, currency or FX trading. Currencies trade in pairs, like the euro versus the US dollar (EUR/USD) or the US dollar versus the Japanese Yen (USD/JPY).
Forex trading is used to speculate on market movements by comparing the relative strength of one currency against another. For example when trading forex, you 'buy' if you think the first-named currency in the quoted pair is going to strengthen against the second-named one, and you 'sell' if you think the first-named currency is going to weaken.
Why do trader trades forex?
The daily turnover in the global forex markets is overwhelmingly driven by speculation for profit.
The largest and most liquid forex pairs, the majors, tend to be the most traded. These include a combination of the most liquid currencies including the Australian, US and Canadian dollar, plus the sterling, yen, euro and Swiss franc. Over 85% of daily currency trading occurs with major forex pairs.
IG Markets offers tight spreads on all the major forex pairs, as well as a huge range of minor/exotic pairs on currencies that are less popular including USD/SGD, EUR/SGD & GBP/SGD.
One of the main reasons forex trading is popular is due to the huge liquidity of the currency markets, which means that bid-offer spreads are relatively small compared to other asset classes. This is especially the case for major pairs where spreads are usually the tightest.
For example 'buying' EUR/USD:
On the morning of 29 October 2009, EUR/USD stands at 1.4858 – 1.4859. The dealing spread between the bid and offer price is just 1 pip (or point).
A 1 pip spread for EUR/USD represents a spread of less than 0.012% of the underlying contract value, which is very low.
How does CFD trading on forex work?
CFD trading on forex is very similar to trading currencies with a bank or FX broker. The conventions used are mostly the same, with the main difference being that we structure your deal as a CFD trade. Take a look at our forex examples to see how you can apply this in practice.
With IG Markets you can trade the forex markets using very low position sizes. For example, you can place a position on the major currency pairs, such as EUR/USD and USD/JPY, from as little as $1 per pip (or point). So for every 1-pip movement in the currency rate, you could make or lose $1. To put that into context, a 100-pip move on any of the major forex pairs, which would be considered a reasonably large move, would result in a gain (or loss) of $100.
Please note that trading CFDs is a geared investment strategy, carrying a high risk to your capital. Only trade with money you can afford to lose. Please see our Risk Notice
Why do forex spreads vary?
Our forex spreads are very competitive and will vary as liquidity fluctuates throughout the day. When spreads in the underlying market are narrow, we pass the tightest possible spreads on to you. If they’ve become unusually wide in the underlying market (more than 1.5 times the typical), we will match this move, but only up to a maximum spread – our cap. In this way we protect you against the widest market spreads.
For example on EUR/USD, the spread will typically be 2 pips, but when the underlying market is very heavily traded our spread will be 0.8 pips. Occasionally (late at night, for example) our spread can be 3 pips.
What are the advantages of forex trading with IG Markets?
The three main advantages are:
- Very tight spreads with our variable offering.
- Automatic monthly rebates for high-volume forex traders
- A pro-level real-time charting package, includes our Autochartist, pattern recognition, software.
- Our huge range order types, such as Trailing Stops.
Learn more about forex trading?
Learn more about forex with our free online seminar 'Forex trading'. In addition, we offer Forex Focus our daily analysis examining the impact of key global factors on popular currency pairs.