Learn to trade FX with answers to commonly asked questions. For further details, please refer to our Contract Details.
What is forex?
Forex is the world's most traded market, open 24 hours a day. It is an over-the-counter market (which means that it is decentralised with no central exchange) for trading currencies.
Forex is also known as foreign exchange, FX, or the currency market. Currencies trade in pairs, like the Australia dollar versus the US dollar (AUD/USD) or the US dollar versus the Japanese Yen (USD/JPY).
Forex trading is used to speculate on the relative strength of one currency against another. For example in an fx trade, 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.
Who trades currencies, and why?
Daily turnover in the world's currencies is overwhelmingly driven by speculation for profit.
Most traders focus on the biggest, most liquid currency pairs, known as the "majors". This includes a combination of the most liquid currencies including the Australian, US and Canadian dollar, plus the sterling, yen, euro and Swiss franc. More than 85% of daily fx trading occurs with major currency pairs.
IG Markets offers tight spreads on all the major pairs, as well as a huge range of minor/exotic pairs on currencies that are less heavily traded including AUD/EUR, AUD/NZD & GBP/JPY.
A central reason for the popularity of fx trading is the enormous liquidity of 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 tightest.
For example 'buying' AUD/USD:
On the morning of 22 February 2010, AUD/USD stands at 9016 – 9017. The dealing spread between the bid and offer price is just 1 pip (or point).
A 1 pip spread for AUD/USD represents a spread of less than 0.012% of the underlying contract value, which is very low.
How does CFD trading on currencies work?
CFD trading on currencies is very similar to trading currencies with a bank or online fx broker. The conventions used are mostly the same, with the main difference being that we structure your deal as a trade. Take a look at our fx examples to see how you can apply this in practise.
It is worth noting that you can access the online forex market using very low trade sizes. For example with IG Markets, you can start CFD trading the major currency pairs, such as AUD/USD, EUR/USD and USD/JPY, from as little as $1 per pip (or point). So for every 1-pip movement in the forex rate, you could make or lose $1. To put that into context, a 100-pip move on any of the major pairs, which would be considered a reasonably large move, would result in a gain (or loss) of $100.
Why do forex trading spreads vary?
Our fx trading spreads are extremely competitive, with spreads on our most traded currency pairs starting from just 0.8 pips. These spreads vary as liquidity ebbs and flows during 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 instance) our spread can be 3 pips.
What are the advantages in Currency trading with IG Markets?
The three main advantages of trading forex online are:
- Tight spreads with our variable offering.
- A pro-level real-time charting package, includes pattern recognition software.
- Our range of simple and more complicated order types, such as Trailing Stops.
How can I learn more about forex?
We have a free online seminar 'Exploring forex trading', dedicated to learning more about forex. In addition, we have Forex Focus, (our twice-daily analysis) examining the impact of key factors on popular currency pairs.