Forex trading for beginners

What factors affect exchange rates?

Ultimately, exchange rates are set by supply and demand. When demand for one currency outstrips that of the other in the pair, the price of that currency goes up. For instance, in the case of the EUR/USD pair mentioned above, this will take place when more people want to buy US dollars than euros at one time.

Whatever affects these market forces will have an impact. These never work in isolation from each other or other economic variables. Below are some factors that affect the exchange rate:

• Global economic health. Strong, stable economies with no political risk and conflict are likely to attract a healthy amount of foreign direct investment, increasing the country’s wealth
• Domestic interest rates. When a country’s central bank changes interest rates, this has a direct impact on the inflation and exchange rates. Higher interest rates mean higher returns for the lender
• Inflation. A relatively lower inflation rate results in a stronger currency value, increasing a country’s purchasing power against other currencies
• Changes in domestic stock prices. A rise in the domestic stock market price increases investor confidence as it indicates the strengthening of a country’s economy. This is likely to attract foreign investors and increase demand for the domestic currency
• Changes in commodity markets like oil and gold. The price fluctuations of highly valued commodities like oil and gold have a strong influence on the exchange rate movements. Oil and gold prices have an influence on a country’s currency and volatility
• Domestic or national economic health and events. A country’s domestic events have an influence on market sentiment. Positive economic events attract investment into a country, while negative ones are likely to result in disinvestment
• Balance of payments (BOPs). These are transactions a country makes with other economies across the globe within a specified timeline. BOPs can result in fluctuations in domestic and foreign exchange rates, depending on the supply and demand of the stronger currency

Learn more about what affects the price of the US dollar

What is the spread?

In forex, a spread is a small fee built into the buy (bid) and sell (ask) price of every currency pair you trade. This is seen on a deal ticket as a difference between the buy and sell prices quoted for a currency pair.

Trading FX with CFDs

The large lot sizes make FX trading very expensive for non-institutional traders to buy and sell actual currencies for speculation. With us, you can use financial products known as contracts for difference (CFDs) to take a position on forex pairs without ever needing to hold the currencies themselves.

With CFD trading, you exchange the difference in price between opening and closing your position. You can take a position on spot, options and forward prices.

CFDs enable you to trade forex with leverage and can be used to go long or short. When trading with leveraged derivatives, you need to manage your risk effectively since they magnify your profits and losses, depending on whether the market moves in or against your favour.

Example of a forex trade

Buying on the spot forex market

You’ll go long (‘buy’) on the spot price of a forex pair, if you expect the base currency’s value to rise against the quote. For example, if AUD/SGD is trading at an underlying market price of 0.88233, with a spread of 4.5, the buy price would be 0.88255 and the sell price would be 0.88210. You'd buy at 0.88255 if you expect AUD to rise in value against SGD. You’ll set a stop-loss to manage your risk.

Selling a spot forex market

You’ll short a forex pair on its spot price if you expect the quote currency to rise in value against the base. For example, if AUD/SGD is trading at an underlying market price of 0.88233, with a spread of 4.5, the buy price would be 0.88255 and the sell price would be 0.88210. You'd sell at 0.88210 if you expect SGD to rise in value against AUD.

How to practise forex trading

You can open a demo account to practise your FX trading. It’s free. Known as paper trading, the demo lets you to build your confidence and gain deeper insight into how FX markets work. You’ll get $200,000 in virtual funds, and you’ll be able to take positions using CFDs on spot, forwards and options markets.

What are the advantages and risks of forex trading?

How do you open a forex trading account?

Here are a few simple steps on how to open a forex trading account with us:

1. Fill in a form

Fill in an application form to open a live account with us. We’ll ask you about your trading knowledge to ensure you get the best experience.

2. Wait for verification

Verifying your identity usually takes a couple of days.

3. Fund your account and start trading

You can easily withdraw your money from your funded account, whenever you like.