Forex trading is the world's most heavily traded market, with estimates of $6.6 trillion* in daily trades. Forex refers to foreign exchange, also known as currency trading. Believe it or not, the daily trading volumes of forex exceed that of commodities trading, stocks trading, indices trading, and cryptocurrencies trading combined. The forex market is decentralised. That means there isn't a single physical location where retail traders and institutional traders go to buy & sell forex. Thanks to brokers and dealers, forex trading takes place pretty much around the clock.

Components of Forex Trades

Every forex trade is made up of base currency and a quote currency. In the UAE for example, the Emirati Dirham is known as the AED. This currency is pegged to the USD. The USD/AED currency pair has two parts. The first currency in the pair is known as the base currency. The second currency in the pair is known as the quote currency, or the counter currency. If the exchange rate of the USD/AED currency pair is 1:3.6725, that means that $1 can be exchanged for the equivalent of 3.6725 Emirati Dirhams.

If we reverse the currency pair to AED/USD, the exchange rate is 1:0.2723. That means that 1 AED can be exchanged for $0.2723. In this pair, the base currency is the AED and the quote currency is the USD. We always quote currencies to the fourth decimal point. This is known as a PIP (percentage in point), and it represents the smallest price movement in an FX pair. When you trade one currency pair for another, you're effectively buying one currency and selling the other currency in the same pair. You can also learn about Bonds.

When you buy the USD/AED, you buy the US dollar and sell the Emirati Dirham. When you sell the USD/AED, you sell the US dollar and buy the Emirati Dirham. Your decision to buy or sell forex is based upon macroeconomic variables. If the Federal Reserve Bank intends to raise interest rates, this would possibly strengthen US dollar. So, you buy the USD and sell the AED. If the Central Bank of the UAE decides to cut interest rates, you might decide to sell the AED and buy the USD.

Different Types of Currencies You Can Trade

Broadly speaking, there are 3 distinct categories of currencies that you can trade. These include the following:

• Exotic Currency Pairs – These include currencies of emerging market countries and major currencies. Examples include USD/THB, EUR/TRY, and USD/AED.
• Minor Currency Pairs - These are popular currencies but they don't include the US dollar as either the base currency or the quote currency. With minor currency pairs, there is always going to be at least one of the following: GBP, EUR, or JPY. Minor currency pairs include CAD/JPY, NZD/JPY, GBP/CHF.
• Major Currency Pairs - there are several major currency pairs, and these are the most heavily traded forex pairs in the world. They include the US as either the base/quote currency in each of the pairs that are available. The major currencies include the USD/JPY, AUD/USD, NZD/USD, USD/CHF, USD/CAD, GBP/USD, and EUR/USD.

ISO 4217 Codes for Middle East Currencies

What are Forex CFDs?

A CFD is a Contract for Difference. It is known as a derivative instrument. The price is derived from the price of the underlying financial instruments. In this case, we are referring to currencies. Xtrade.net offers competitive leverage forex CFDs. Think of leverage as magnified buying power. For example, with GBP/TRY , you can enjoy leverage of 30:1 on your trades. For every $100 in capital, you can trade $3,000 in forex CFDs.

Margin is also important with forex CFDs. It represents the percentage of the total amount that you need to pay upfront to open a trade. If the forex CFD trade is valued at $10,000, and leverage of 30:1 is available, you need to deposit $333.33. You can trade forex CFDs on the Xtrade WebTrader platform direct from your browser. Plus, you can trade on Android and iPhone using our mobile trading apps.

With forex CFDs, you don't need to trade in one direction. You can trade forex CFDs in rising or falling markets. If you believe that one currency in a pair will weaken, you can sell the pair. If you believe that one currency in a pair will strengthen, you can buy the pair. Positive expectations are known as bullish expectations. Negative expectations are known as bearish expectations. When you are bullish, you go long (BUY) the pair. When you are bearish, you go short (SELL) the pair. * Please take note that forex CFD trading is highly volatile. You stand to lose more than your initial deposit if a trade moves against you. You will be liable for the full value of the trade if your assessment is incorrect. The financial markets are inherently risky, and forex CFD trading is not suited to everyone.

Benefits of Trading Forex CFDs at Xtrade.net

• Demo trade forex CFDs at zero-risk at Xtrade.net
• You can trade currency pairs in rising and falling markets
• Diversify your portfolio by allocating a smaller percentage of your available capital to each trade
• Enjoy improved leverage with major pairs, since they are the most heavily traded currencies with greater liquidity and volume
• No need to be concerned about the physical delivery of currency – simply trade the CFD contracts and benefit when your assessments are correct.

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