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Forex Trading
Trade the world’s largest market with the most popular FX pairs.
What is Forex?
Forex (FX, Currency Exchange, Foreign Currency) is by far the most highly traded and liquid market in the world with daily transaction volumes well above USD 4 Trillion. Characterized as an OTC market (Over The Counter) there is no centrally regulated exchange, and the marketplace is made up of various groups including Retail and Institutional Investors, Broker, Liquidity Providers, Banks and Hedge Funds.
How to trade Forex
The basic trade consists of the relative movement of the exchange rate between two currencies. Trades are taken in pairs, for example, the EURUSD (Euro vs. United States Dollar). Price quotes are displayed as the exchange rate for these two currencies.
For example, you might see a price displayed as:
EURUSD – 1.05000. It indicates that 1 EUR is worth 1.05000 USD. TradeGM is a 5-digit broker, so all prices are quoted to the 5th digit, allowing for fractional pricing and tighter spreads.
In our EURUSD example, the first currency (EUR) in the pair is known as the Base Currency. The second currency in the pair (USD) is known as the Quote Currency.
Forex Lots
Forex trades are opened and closed on what are referred to as Lots, with a Standard Lot being equal to 100,000 units of the base currency. In our EURUSD example, a Standard Lot would involve €100,000 equal to $118,000 (at the example exchange rate).
Not all traders want to, or are able to trade Standard Lots, so smaller trade volumes are available:
Standard Lot = 100,000 units of the base currency
Mini Lot = 10,000 units of the base currency
Micro Lot = 1,000 units of the base currency
How To Trade
A forex trade involves two legs, usually referred to as a Round Trip. We buy (or sell) a currency pair then sell (or buy) the same currency pair in the hope of making a profit on the rise (or fall) in the exchange rate.
Let’s look at this with our EURUSD example.
Believing the value of the EUR will rise relative to the USD, we open a Buy position for one Lot of EURUSD.
At the 1.18000 rate, we spend USD 118,000 to buy EUR 100,000.
The value of our Euros increases relative to the Dollar and the rate moves to 1.20000. Our EUR 100,000 are now worth USD 120,000.
Closing the position out (completing the round trip) would leave us with a profit on the trade of $2,000.
Trades can go in the other direction as well. If we believe the value of the EUR will fall relative to the USD we would open a Sell trade for the pair, hoping to make a profit on the fall in the rate.
TradeGM offers Forex trading on the award-winning MetaTrader 4 platform, available in desktop, mobile and browser-based versions.
