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Currencies

Just like a trader can buy and sell stocks or bonds, it is also possible to trade currencies. The Foreign Exchange Market, also known as the FOREX market is the largest market by far in terms of trading volume with an average daily turnover of more than 5 trillion dollars worldwide, according to the Bank of International Settlements. Therefore, it appeals to both traders trading small or larger size, because it is relatively easy to transact the trades and the cost is much lower when compared to other markets.

With currency markets, no currency moves in isolation, which explains the quotations of the currency. One currency quoted against another means that when one of them goes up, the other one goes in the opposite direction in terms of price. The variety of traded currency pairs is vast, however, there are seven major currency pairs accounting for the most trading volume on the market. Although some traders like exotic (less popular) currencies such as the Thai baht or the Czech koruna, most of the investors trade the seven most popular and liquid currency pairs in the world. The “Majors” are:

  • EUR/USD – known as “euro"
  • USD/JPY – also known as "gopher"
  • GBP/USD – known as "cable"
  • USD/CHF – known as "swissie"

The three less popular commodity pairs are:

  • AUD/USD - "aussie"
  • USD/CAD – "loonie"
  • NZD/USD – "kiwi"

Looking at currencies and currency pairs it is all about relative value – one currency is stronger or weaker than another currency. For instance, if a trader thinks that the price of the GBP may go up or down, he/she may, respectively, buy or sell GBP/USD, which is the first quoted currency in the currency pair. The profit, either positive or negative, depends on the difference between the prices of buying and selling the currency, and the amount invested by the trader. In order to get a prediction on the future price movements of a particular currency pair, it is recommendable to get familiar with fundamental and technical analysis.

When an investor is trading on the foreign exchange is normally using leverage, therefore, even if he/she has €100 000 position in one currency, that doesn`t mean that the whole amount is tied up to it. The movement in currencies is measured in small units called “pips” (0.0001), that is why leverage comes handy in order to cover the capital requirements to generate noticeable profits. Normally currencies don`t move that much during the day and along with leverage, the majority traders may put a percent of this value on the position and he/she is in a situation where a small sum of money can control a much bigger financial position. Moreover, that offers the potential for earning greater profits, however, it also carries a risk. That is why it is important the risk to be well managed and investors to be aware of it.

What moves foreign exchange pairs? The most common answer is potentially everything can have an impact on the currency market which is a predicament of high volatility. For example, interest rates in one country are higher than the interest rates of another country – which can make the first currency appealing. On the other hand, higher interest rates may mean a weaker economy which can make money flow the other way. Additionally, the unemployment rate, political events, other related national reports announced on a monthly or weekly basis – all of which can cause a significant impact on the currency market. Since its dynamic characteristic, currency traders are very active and sometimes it may happen to open and close a position within minutes.

On Fibonetix, currencies are traded as CFD’s which means that it is not necessary to purchase the asset in order to trade it.

Risk Warning:

Trading Contracts for Difference and Foreign Exchange is highly speculative and carries a level of risk that may not be suitable for all investors. You may lose some or all of your invested capital; therefore, you should not speculate with the capital you cannot afford to lose. You should be aware of the risks associated with trading CFD’s and Foreign Exchange. In addition, please take into account your current knowledge level of trading experience and seek independent advice if necessary. We kindly advise all our clients to make sure that you carefully have read all the available. Terms & Conditions and the included Risk Disclosure statement prior to undertaking any operations on our trading platform. We do reserve our rights to cancel all or a single client deal which is connected to any suspicious activity without preliminary notice.

Under no circumstances shall we have any liability to any person or entity for (a) any loss or damage in whole or part caused by, resulting from, or relating to any transactions related to CFDs or (b) any direct, indirect, special, consequential or incidental damages whatsoever. We strictly do not provide investment advice.

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