We always encourage our clients to obtain maximum information before starting trading. Please note that Forex and CFD trading involves significant risks. It is crucial to understand how the market works as well as the meaning of the specific trading terms.

Below you can find some basic information about the market and trading:

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Forex, or FOReign EXchange, is the exchange of one country’s currency for another country’s currency.

Example: Sam lives in the US and is traveling to Europe. Sam has USD and needs to buy EUR. The current exchange rate is 1.3000 USD for 1 EUR. Sam buys 1000 EUR by selling 1300 USD (1000 x 1.3000). This is a foreign currency exchange or Forex.

The forex market is a place where currencies are traded. To buy EUR with USD you need to go to a bank or a forex bureau and sell your USD for EUR. Each bank or money changer has its own rate. The forex market consists of all these banks and money changers; it is not just one special place or one exchange. The forex market is decentralized and it is huge, with a turnover of around 4 trillion USD a day. It is much bigger than the equity market and is extremely liquid and volatile.

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Trading involves buying or selling one asset in exchange for another asset.

Online trading involves a trading process that is carried out via the Internet. Users can access online trading platforms on the Internet. They can see current market prices and make deals as well as oversee all their trading activity.

A CFD, or a Contract For Difference, is an agreement between two parties to exchange the difference between the opening and the closing prices of a contract at the moment of the contract closure, with this difference multiplied by the number of units of the asset specified in the contract. A CFD is a derivative linked to the underlying asset price. It does not involve physical asset delivery. When you trade in forex online, you do not buy or sell real assets. If you open EURUSD long, you do not physically buy euros and sell dollars. You trade CFDs. You make a deal that, at the moment you close the deal, you will receive or pay the difference between the opening and the closing prices multiplied by the number of units.

Example: Sam opened 1 standard lot of EURUSD long (that is, Sam bought 100,000 EUR-versus-USD CFDs). At the time of Sam’s purchase, the current rate was 1.3000. Sam has just closed and the closing rate was 1.4000. When he closed, Sam made a profit = (1.4000 — 1.3000) x 100,000 = 10,000 USD.

Currencies differ from other assets because they are traded in pairs. When you trade shares or gold, you buy or sell with money. With forex, you trade one currency against another currency: you buy one currency and sell the other. Therefore you are trading two currencies, or a currency pair, simultaneously.

Example: When you buy EURUSD, you buy euros and sell dollars.

Currencies in a currency pair are denoted by 3 capital letters according to the International Standard for currency codes — ISO 4217. The first 2 letters are the same as the country code (according to the International Standard for country codes, ISO 3166). And the third letter represents the currency name.

Example: USD = US dollar, where US = the United States and D = dollar.

Currency pairs are made up of the first currency — the base currency — and the second currency — the term (or counter/quote) currency. There is a common international practice regarding which currencies are base currencies and which are counter currencies in currency pairs based on the following specific priority rankings: