Foreign exchange trading, or Forex trading, is a way to speculate on and trade global currencies across markets around the world.
Put simply, the main purpose of Forex trading is to make a profit from movements in global currencies.
This means that it is always done in currency pairs, with the first one listed known as the base currency - for example EUR/USD or GBP/USD - and the aim is to sell the base currency for more than you bought it.
You will be given a bid and an offer in any Forex trade. The bid is the price at which you can sell the base currency (i.e. buy the second currency) and will be the first price quoted. The offer is the rate at which you can buy the base currency (i.e. sell the second currency).
For example, a quote of USD/GBP @ 1.47 means that one US dollar is equal to one pound and 47 pence.
An unrealised profit will be established if the currency you are buying rises in value relative to the currency you are selling, but you then have to sell that currency at the better price in order to make your profits a reality.
If the markets move against you, then any unrealised profit you generated could become a loss.
Forex is known as one of the most liquid trading asset classes and you need to be able to adapt quickly to changes within markets if you are to make a profit.
There are several different types of Forex transactions, such as a spot trade, a currency swap, a forward transaction and a foreign exchange (FX) option.
A spot trade is a two-day delivery transaction. Basically, this represents a direct exchange between two currencies and involves cash rather than a contract. It also has the shortest timeframe for an FX trade.
The most common trade is a currency swap. This simply means that two parties exchange currencies for a specified length of time and agree to reverse this transaction at the end of this period.
A forward transaction allows you to manage foreign exchange risk. The transaction is agreed between the buyer and seller at a particular foreign exchange rate. This transaction then takes place at a pre-specified date in the future, regardless of the actual exchange rates at the time.
An FX option is similar in that the owner has the right to exchange money denominated in one currency into another currency at a pre-agreed exchange rate on a specific date - however, there is no obligation attached to this trade.
Foreign Currency Futures are another method of trading, whereby currencies are traded in forward transactions. These have standard contract sizes and a maturity date, with the average length of the contract usually three months.
It should be noted that Futures are standardised and consequently are usually traded on an exchange created for this purpose.
Forex trading provides several benefits to traders, notably that it is available 24 hours a day, offers superior liquidity and leveraged trading with low margin requirements, is usually commission-free and allows you to profit when markets both rise and fall.
It should be noted that the leveraged nature of the product means that Forex trading carries a high level of risk to the investor’s capital and is therefore not suitable for all investors. The trader's liability can be far greater than the value of the original investment.
Using the online Forex trading platform from MF Global Markets gives you a chance to access all of these benefits and is based on spot trading.
A $1,000 deposit is the minimum amount required to open an online Forex mini trading account or £5,000 for a full-sized FX trading account.
MF Global Markets' online Forex trading platform will help you gain access to this form of investment.
Quotes are sourced from multiple major worldwide liquidity providers, which means you will be given a highly competitive bid and offer for each pair, allowing you to find the optimum FX trading spread.
You will have access to more than 40 currency pairs, while the trading platform offers a 40:1 (2.5%) margin.
When you start using the MF Global Markets online trading platform, you will be able to view live charts and news feeds alongside the 24-hour streaming FX trading prices.
You will also receive updates about any breaking FX trading news and have access to the 24-hour trading helpdesk for online FX trading support.
MF Global Markets also offers a traditional telephone broking desk to help you get the most from your account.
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