CFD Trading in a Nutshell

FOREX MARKET: TRADING ON THE FOREX MARKET ALSO SUITABLE FOR TRADING BEGINNERS

The Forex market is the most liquid of the financial markets. Traders can be active at almost all Forex market opening hours, although there is no chance to do so at weekends due to stock market closures. Nevertheless, it is possible to trade the numerous forex pairs and their movements successfully 5.5 days a week and thus make attractive profits. We have tested how exactly this works and what tools traders need for this.

Forex trading with demo account recommended as a start
Forex trading possible 5.5 days a week
Forex market trading hours mainly Monday to Friday
Max. leverage for Forex trading: 1:30

Forex market: Everything about the foreign exchange market explained
The Forex market is the largest in the world and traders can be active almost around the clock. Forex pairs are traded, consisting of major currencies, minor currencies and exotics. The major currencies are particularly liquid because they have the largest trading volume. Especially currency pairs with Euro and USD are very popular, because they make up the lion’s share of the Forex market.

Those who choose to trade the major currencies can not only take advantage of the increased liquidity, but also benefit from more favourable spreads. But what else is significant for forex trading and what do traders need to effect? We present all the information on forex trading in more detail.

What is the Forex Market?
In forex trading, global currencies are traded in pairs, so that a purchase of one currency online sale of the other takes place. In addition to private investors, institutional traders and large market participants are the main contributors to price developments. Leading the way here are the central banks, which help to direct developments on the foreign exchange market with their currency and interest rate policies. Therefore, it is important that investors always keep an eye on the decisions of the central banks, because they usually have a direct impact on the immediate price change.

Trading on the Forex market is particularly interesting when there is a high level of liquidity and as many traders as possible are active. The stock exchanges in Australia, New Zealand and Asia open as early as Sunday evening German time and have their greatest trading activity between 0:00 and 8:00. However, the overall FX market is not very active at this time, as the major economies of the US and Europe have not yet started their trading activities.

While the market has already started in Dow Under and Asia, it is still asleep in Europe and the USA. This will only change on Monday, when the European stock exchanges will open their doors punctually between 8 a.m. and 4 p.m. GMT.

American Forex market trading hours start later
Due to the time difference, the American exchanges do not open until between 4 pm and midnight GMT, which means that there is a lot of movement, especially in the currency pairs that are traded against the USD. On Friday, there is even an overlap between European and Asian trading hours, which briefly creates interesting liquidity in these currencies.

Forex market trading hours: certain days of the week have proved particularly successful
Are there actually Forex market trading hours that are particularly suitable? Indeed, traders can expect more liquidity in the market on certain days than others. On Sunday, trading starts on Australian and Asian exchanges, so volatility on the forex market is less than with the start of trading on the European and American exchanges on Monday.

This is why, for example, there is less liquidity until Monday afternoon, so that traders can expect fewer market participants and price fluctuations. On Monday, the stock exchanges open first in Europe and then in the USA, so that liquidity increases in the course of the day. Nevertheless, Monday (especially early) proves to be sluggish for trading in the foreign exchange market in Europe.

Liquidity increases from Tuesday
Experience shows that liquidity on the Forex market increases from Tuesday onwards and even continues until Thursday. Market volatility is more than 100 percent higher on Tuesday than on Monday, as a look at the volume clearly shows. On Wednesday, however, trading activity decreases a little, which has to do with the triple SWAP rates. On Thursday, on the other hand, volatility rises again and thus traders have more opportunities to trade again.

Friday interesting because of overlaps
On Friday, liquidity in the market is somewhat lower again, as many traders are already going into the weekend. Nevertheless, the forex market offers something interesting on Friday, because Asian and European trading sessions overlap. Therefore, there is initially a similarly high volatility as on Thursday, which, however, decreases significantly with the end of the day.

Trading on the Forex market: less recommendable in summer?
Does the proverbial summer slump also exist in the forex market or do traders not have to pay attention to it at all? Yes, indeed, there is a significant volume retreat in the forex market during the summer months. Many traders are in or out of the market from June to August and that is exactly why the number of market participants drops. Of course, traders can still be active in the forex market during this time, but they should firmly consider the lower volatility in their trading decisions.

In the first half of the year from January to May, on the other hand, high volatility is observed as traders try to generate their profits before the summer hole and prepare the portfolio for the period after the summer break.

Labor Day ushers in end of summer slump
Experience shows that the summer slump on the foreign exchange market ends with the first Monday in September, Labor Day in the USA. This is when market liquidity begins to rise and traders prepare for the last four months of the year. Now it’s time to sport and generate the important credits before the Christmas holidays. Until the end of December, traders trade intensively in the market and then post briefly during the Christmas holidays. But those who think that the new year will start sluggishly from January are mistaken. The experience of the developments in trading volume clearly shows that the first trading day in January is the start of a new high on the foreign exchange market.

Trading on the Forex market and taking advantage of rising and falling prices
What do traders actually trade on the forex market? Of course, currency pairs are not bought directly, but investors speculate on their price trend. Therefore, it is important to forecast the trend or recognise patterns as soundly as possible. In order for traders to take advantage of price situations, the first thing to do is to look at the prices. Will they fall or rise in the future or even move in a sideways trend?

Price movements in the Forex market
If you believe that a price always moves linearly in one direction, you are mistaken. The prices on the forex market are subject to thick fluctuations, so that a wave pattern often appears on the chart. The art is to make the best use of the movements and to trade the position on them.

Foreign exchange CFDs have proven their worth even in difficult market phases, as investors can use them to take advantage of even the shortest price movements. Experience shows that there is less movement in the major currencies than in the minor currencies or exotics. Those who want to act with less risk appetite concentrate mainly on the major currencies and on the easier trend determinations. If, on the other hand, investors bring a little more risk appetite with them, trading in major currencies and exotics can also bring significantly more profit potential due to the increased volatility.

Foreign exchange CFDs: risky and lucrative at the same time
Contracts for difference are known above all for the fact that they can enable larger profits with little capital. This is due to the leverage effect, which can amount to a maximum of 1:30 private investors (for major currencies) in the case of foreign exchange pairs. If investors trade minor currencies, the leverage is limited to a maximum of 1:20. It serves as a multiplier and makes it possible to put more money into the market even with little equity capital and thus, of course, to achieve higher profits.

The leverage is positive on the one hand, but can also bring higher losses. If traders do not manage to open a position to limit losses, leverage naturally also works in the opposite direction and can significantly increase losses.
Risk Limitation with Forex CFDs
Risk limitation is enormously important for successful trading of forex CFDs. Investors should therefore open appropriate stop loss and take profit positions with each position, ideally even guaranteed ones. This ensures that the position is actually closed at the set value. For hobby traders who are not constantly sitting at their PC, this is an optimal solution to be able to profit from the foreign exchange market and still ensure a limitation of losses and profit taking.

Tip: If you want to try out trading with forex CFDs first, we recommend a free demo account with the forex broker. However, renowned brokers not only provide the demo account with virtual credit, but also countless opportunities for further training.

Analysing prices correctly: fundamental and technical analysis presented
In order for traders to be able to make the important trading decisions, the best possible price analysis should be carried out. Technical and fundamental analysis have proven themselves, although they follow different approaches. Which analysis method makes the most sense for trading on the foreign exchange market? There is no general answer to this question, because both technical and fundamental analysis have their strengths and weaknesses. Combined, both certainly offer a good starting point for making trading decisions.
Technical analysis presented
Technical analysis is about relating time and price in a forex pair and making predictions about future developments. There are numerous tools for technical analysis on trading platforms that traders can use to identify trends and patterns, for example. The candlestick chart has proven its worth, as it makes it comparatively easy for traders to graphically read and display the information they need for technical analysis. The focus is primarily on support and resistance lines in order to forecast possible trends.

Weaknesses of technical analysis
As beneficial and simple as technical analysis is, it also has weaknesses. The analysis refers to data that lie in the past. The aim is to draw conclusions about future developments, but without taking into account, for example, market indicators or other factors. Therefore, it would make sense at this point to consult fundamental analysis in order to compensate for the supposed weakness of technical analysis.

Fundamental analysis presented
Fundamental analysis follows a different approach than technical analysis and is based on influencing factors. The foreign exchange market in particular is significantly influenced by currency and individual decisions as well as economic factors. Therefore, it makes sense to use fundamental analysis in price analysis. Important influencing factors can be, for example:

elections
economic progress
interest rates
natural disasters and wars
Unemployment rate
GDP development/forecast
These factors are not even taken into account in technical analysis, but they have an important meaning in the foreign exchange market. If, for example, a central bank now changes interest rates, this is not yet apparent in the price trend, because technical analysis relies on historical data. This is exactly where fundamental analysis shows its great strength, because it includes precisely such factors in the forecast.

Use a trading platform with indicators and tools
To support technical and fundamental analysis, traders can use many tools and indicators with an innovative trading platform. MetaTrader 4 has proven itself especially for the foreign exchange market, because it not only offers a high level of functionality and user-friendliness, but also numerous free features. This enables traders to make even better price forecasts and to operate successfully on the Forex market. In addition to trading on the PC, MT4 also offers the possibility to become active via smartphone or tablet, because the trading platform is also available as a free double for iOS and Android.

Which broker offers access to the Forex market?
Trading on the Forex market is not possible without a licence. Since private investors do not have an exchange licence, they need access through an intermediary to trade on the forex market. There are numerous forex brokers who specialise in forex trading and brokers who also offer other assets in addition to forex, for example ETFinance. When choosing a broker, a comparison is helpful, as experience has shown that the conditions offered differ significantly. To make it easier for you to choose a suitable Forex broker, we have summarised the important criteria for selection.

Trading costs
Trading costs are extremely variable with a broker, but should be as cheap and transparent as possible. What use are the best profits with forex trading if the trading costs neutralise the profits or the traders even have to pay on top? Therefore, when choosing a broker, it is advisable to look for a transparent cost structure with spreads that are as low as possible.

Services
The services offered by a broker are also important, especially when it comes to further education and trading support. If traders are at the beginning of their trading career, as much support as possible is naturally desirable. This includes, for example, a free demo account and further education offers; tips from trading professionals.

Assets offered
The assets offered are also interesting when choosing a broker, because for optimal diversification it is advisable to be active not only in the foreign exchange market. Therefore, it is good if the brokers also offer other assets, such as securities or cryptocurrencies.

Trading on the Forex market: the most common beginner’s mistakes
Those who want to trade on the forex market and are at the beginning of their trading career often have little experience and do not really know what they should actually pay attention to. There are two types of traders:

The one who just lay it on the line without dealing with forex trading and hope that they will be successful with it.
The others, who familiarise themselves with the basics and practise first, in order to then be better prepared to trade on the foreign exchange market.
Which category do you belong to? We have compiled some of the most common mistakes made by trading beginners in order to raise awareness and ensure that, at best, these mistakes do not occur in your case.

Lack of risk management
Risk management is also particularly important when trading on the foreign exchange market, because without sufficient loss limitation, investors have a hard time celebrating success with their capital in the longer term. Therefore, stop loss and take profit positions are always recommended in trading activities.

No optimal capital management
How much can I afford at all? Investors often answer this question far too rarely. When trading on the foreign exchange market, it is important to keep a close eye on one’s capital and, at best, to spread it. Traders should also only use the capital for trading that they can actually spare and under no circumstances trade with credit.

The most important steps to becoming a successful Forex trader
More and more less experienced traders are seeking access to the forex market to trade currencies and profit from their movements. With a few important tips, it is comparatively easy to gain access to forex trading in the first place and, at best of course, not to make losses with your own capital.

Tip 1: Start with play money
For those who have no experience at all in trading with foreign exchange, a demo account is a good way to start trading. Many Forex brokers provide the demo account free of charge and ensure that investors can become active in the foreign exchange market without losses. Although no profits can be made with the demo account, traders can at least trade on the foreign exchange market under conditions close to the market and see the effects of their trading decisions.

Tip 2: Set realistic investment goals
Goals and in trading plan are always important when it comes to forex trading. This allows traders to check whether their activities in the foreign exchange market are working out or whether there is room for improvement. However, the goals should be chosen in such a way that they are measurable and realistic. If you start trading as a beginner, you will certainly not win a million in the first few months; certainly not if you start with a capital of 100 euros.

Tip 3: Constant monitoring and learning
Constant control of one’s own trading activities as well as permanent learning are also important success components for successful investors. Does my applied strategy work or not? If it does not work, then of course it must be adjusted.

Conclusion: Forex market offers investors countless trading opportunities
Forex market trading hours are almost around the clock, so with few exceptions, traders can make the forex market work for them. Even inexperienced investors can get started quite easily, for example, if they use a demo account in the Forex broker of their choice and start with virtual credit. In order for traders to be able to trade on the Forex market, we recommend that they have the necessary basic knowledge and understanding of market mechanisms and price formation.

This will equip traders to make profits in the longer term. Of course, even with the best prepared traders, there is never a 100 percent guarantee of profit. However, those who are well prepared can also handle difficult market situations more confidently. For the beginning, we recommend starting with little capital in order to develop a trading routine step by step and to be able to trade losses better. Would you like to let your opportunities on the Forex market pass or take advantage of them?

FOREX SCHEDULES: THESE DATES SHOULD NOT BE MISSING FROM ANY FOREX SCHEDULE

Every investor should have a fixed forex schedule for his trading activities on the foreign exchange market. The main focus here is on the dates of the central banks. The ECB, for example, has an important forex date every six weeks, because it makes decisions about future currency and interest rate policy. In the economic calendar of a broker, precisely such Forex dates can be optimally viewed and managed, because they are recorded there and are even forecast with their effects. We show which dates or trading times on the foreign exchange market can still be interesting.

Forex dates can be found in the brokers’ economic calendar
ECB Council meetings are important dates for European traders
Foreign exchange trading less trading volume especially in the summer months
Practice the optimal use of forex dates free of charge with a demo account

Forex dates: once a month everything looks to the ECB
Although the foreign exchange market is largely determined by supply and demand, there are also important forex dates that can strongly influence it. One of these is the ECB Governing Council meeting. As a result, traders hope to be able to draw conclusions about possible trading potential and invest in the market. But what is the ECB meeting all about?

Important forex date every six weeks
The ECB Governing Council meeting takes place every six weeks and is about setting the key interest rate and other price-stabilising measures. The ECB only makes these decisions for the eurozone, but nevertheless their impact sometimes affects other currencies.

For example, if the euro is weakened, other currencies often even have a boost, which is naturally reflected in market prices. The ECB tries to keep the inflation rate below a mark of 2.00 per cent through its easing measures, as this is intended to control the inflation regime. The aim in the longer term is to increase the injection of money into the economy and thus boost consumption.

Note the ECB press release
Every six weeks at 12:45 CEST, an important milestone in the Forex schedule is published: the press release of the ECB Governing Council meeting. This is followed by the press conference at 13:30, where the decisions are justified once again. In addition, there will be an outlook on future monetary policy measures. It is precisely these statements that traders are eagerly awaiting, and they gear their trading activities accordingly.

Why are ECB decisions so interesting for the foreign exchange market?
The ECB sets the tone in the euro area when it comes to foreign exchange. That is why many investors try to forecast possible decisions in advance and trade them. However, this is not always easy, especially for novice traders.

Before the Council meeting takes place, experience shows that the ECB keeps a low profile on decisions in order to prevent excessive fluctuations caused by speculation on the market. With the publication of the press release, however, things usually start to move, because the terms in it are analysed in detail. The aim is to read off the possible attitude to the future monetary policy and to process the current decisions in the form of trades.

Unexpected decisions bring big market movements
If, for example, there are unexpected interest rate hikes by the ECB at the Council meeting, the euro gains ground in the currency pairs. This is good for all traders who follow the trend, because they can bet on an upward trend development with a high probability. If, on the other hand, there are unexpected interest rate cuts, this can put pressure on the euro pairs and even cause a downward trend. If you have this background knowledge, you can make the most of even uncertain market phases, for example with Forex CFDs, and even use a leverage of up to a maximum of 1:30 (for major currencies) for this as a private investor.

Forex schedule coordinated according to seasons and weekdays
Strictly speaking, trading on the foreign exchange market is possible on 5.5 trading days a week. However, not every day or month as well as every season is equally suitable for becoming active on the forex market. There are even certain times of the day when forex dates are unsuitable for trading and some when traders should look and trade more closely.

The best days for forex trading
Not only the days, but above all the time play an essential role in forex trading. At some times there is higher volatility, at other times there is less volatility. The stock exchange in Australia opens on Monday morning, while here it is still Sunday night.

For traders, this means that trading only takes place in Australia, but not on the major stock exchanges in Europe and America. This means that two countries with enormous economies are not involved in the market. Therefore, experience shows that volatility is very low at this time. For this reason, gaps (under regular conditions) can occur on Sunday night.

Carrier trading on Monday morning
Monday morning foreign exchange trading begins in Europe, but it is still somewhat sluggish at the opening of the market, according to experience. Only when the European traders really start their trading activity around noon will this have an effect on the capital market. Those who are counting on an extremely liquid market environment should cancel their forex trading appointments on Monday and tend to concentrate on the other days of the week.

Better trading prospects on Tuesday, Wednesday or Thursday
After Monday has started off somewhat behaving, experience shows that developments in the forex market pick up significantly from Tuesday onwards. Market volatility on Tuesday is often between 120 and 130 percent higher than on Monday. This is why many investors decide to schedule their Forex trading on Tuesday.

On Wednesdays, a jump in volatility tends to be observed as trading activity becomes slightly lower. The reason for this lies in the SWAP. If a position is held at the end of Wednesday, traders have to pay three times the SWAP. Those who hold the position over the weekend pay the normal SWAP rate.

Forex Trading on Friday
Fridays are also an interesting time for many traders in the forex market because of the overlap of European and Asian trading pairs. This results in similar volatility to Thursday, but mainly in EUR/JPY and GBP/JPY. On the other hand, Asia-Pacific or North American forex pairs are weakening in volume as Friday’s markets close in the evening. Nevertheless, traders can of course take advantage of their opportunities until Friday afternoon, as the trading volume only falls later when traders head off for the weekend.

Tip: An important forex date is the US Non-Farm Payrolls, which are released on the first Friday of every month. Experience shows that they create high volatility in the market, which traders can use to their advantage.

Seasons not always optimal for Forex trading
There are not only important forex dates spread throughout the year, but also seasons that play a significant role in volatility and developments on the forex market. Experience shows that the summer months show little market activity, so that the saying “Sell in May and go away…” also comes into play on the stock exchange. Research shows that the summer months bring little return on many financial transactions, especially in August.

The reason is easily explained: many traders are on holiday, so there are fewer large fluctuations in the market. Long-term market participants prepare themselves early for these developments and sell positions from the portfolio before going on summer holiday. At the end of the summer, the positions are then built up again in order to profit from the so-called “year-end rally”.

Special strategies for trading in the summer
Despite the low market movements, investors can also take advantage of the summer months and trade “range setups”, for example. Fluctuations are not as strong and the change of direction is therefore not as intense. The same applies to traders who act intraday. The end of the summer slump in trading is usually heralded by Labor Day in the USA, the first Monday in September. This is when the last four months of the year begin for the most important gains.

Use autumn and winter for trading in the Forex market
After the summer months are marked with low trading activity, things start to look different from September onwards. Most professional traders return from their summer holidays, so the movements on the market become more intense. Of course, private traders also feel this, because they are suddenly confronted with higher volatility. The months after the summer are suitable for generating targeted profits, because the market participants are back and bring larger trading volumes with them.

December only conditionally recommendable
Until December, the foreign exchange market moves enormously, but this changes with the upcoming holidays in December. However, the breather is only for a short time, because as soon as the turn of the year has passed and the holidays are over, volatility returns to the markets. Now it starts all over again and traders have about five months from January onwards to generate profits on the foreign exchange market, taking into account important forex dates. Of course, traders can also trade during the summer months, but it may not always be as worthwhile due to the low market movements.

Note: Even on holidays that are almost identical internationally (Easter, for example), there is a brief drop in trading activity on the markets. However, compared to the long summer slump, this only lasts a few days (as long as the holidays last).

Use economic calendar at brokers for Forex schedule
How do traders actually manage to keep track of all the important forex dates and, if necessary, already enjoy them for their impact? A few years ago, traders still had to laboriously collect all the dates themselves and note them down on slips of paper or a document online, for example. In the meantime, however, there are much better ways for private investors to do this. Almost all renowned forex brokers, for example ETFinance, provide a free economic calendar in which all important events with their forecasts and possible effects can be found.

Current news as push notification
In addition, there are countless notification options with which traders are always kept up to date. For example, traders can have the latest news on ECB decisions or significant market changes sent to their smartphone or tablet as well as to their PC by means of push notifications. This means that no news is missed and traders can react even more quickly.

Use automatic trading systems as support
If investors hardly have time to react to market events or to observe the markets, we recommend automatic trading systems as support. For example, with the well-known trading platform MT4, there are already countless pre-installed EAs that investors can use. Those who wish can even compile or adapt EAs themselves on the basis of the simple programming language or download further EAs (free of charge) directly from the MQL4 shop.

Practice with a demo account and improve your reaction to forex dates
How do I react correctly to the effects of a particular Forex date? Especially investors at the beginning of their trading career are often overwhelmed with this question and react incorrectly. To prevent this from happening and to ensure that investors are as well prepared as possible, we recommend trading with a free demo account instead. Many brokers offer it with virtual credit and even for an unlimited period of time, so that traders can not only get to know the broker better, but also make the important trading decisions on the foreign exchange market without risk. The advantage: even if the trading decision was wrong, the traders only lose the virtual credit, not their own capital.

With demo account also access economic calendar and use further training offers
The demo account is offered with conditions close to the market, so that not only the trading costs are included, but also access to tools such as the economic calendar. This allows traders to practice how best to use the economic calendar to make trading decisions early or how to react directly when the ECB press release is published. Those who need support can often find it in the free training area of the Forex brokers. Here, not only a lot of basic information on forex trading is available, but also tips from trading professionals or information on how to use trading tools.

Conclusion: Forex dates can be optimally called up and managed in the economic calendar
There is not only one important forex date throughout the year, but several, especially for European traders. Every six weeks there is an ECB Governing Council meeting where the current monetary policy and interest rates are discussed and decided. These dates are always eagerly awaited, because if unforeseen interest rate adjustments take place, the market usually reacts immediately.

If you keep an eye on these events in your forex schedule and play through the possibilities for price developments in advance, you can react more quickly and use market developments to your advantage. To make this easier, we recommend starting with a Forex demo account, because this allows you to trade the dates and their possible effects with virtual credit. Even if the trading decision was wrong, this is no problem at all, because only virtual credit is lost. You can also make use of the forex dates and practise with the free demo account how your trading decisions correspond to the actual market movements.

WHAT IS FOREX? – THE ULTIMATE GUIDE TO LEARNING FOREX TRADING

What is Forex? – The Foreign Exchange Market Explained
Trading in foreign exchange is also becoming increasingly interesting for private investors. Access to the foreign exchange market and countless related financial instruments is much easier through online brokers, allowing traders to invest in currencies inexpensively and without much prior knowledge. The only question is: Forex what is it? Forex is another term for the foreign exchange market, also known as the Foreign Exchange Market. It is where the world’s currencies are traded, of which there are countless. The forex market is the most liquid in the world and virtually never sleeps, although trading activity is only possible during stock exchange opening hours.

What is the Forex market and what is traded on it?
Currencies are never traded alone on the forex market, but always in pairs. The movements of a pair are measured against the second currency. For example, if you trade Euro and USD as a currency pair, you measure the value of the Euro against the USD. As soon as the value of a currency pair rises, this means that the euro has increased in value against the USD.

Conversely, if the value of this currency pair falls, it means that the value of the USD has risen against the euro. Such price movements always occur in waves and are never linear. It is precisely these price movements that traders exploit in foreign exchange trading.

Trade forex pairs: What is a forex pair and which ones are there?
When trading forex, we distinguish between three different currency pairs:

Major currencies
Minor currencies
Exotics
The main currencies are also called majors. These are the following currencies: USD, euro, Japanese yen, British pound, Swiss franc, Canadian dollar, Australian dollar as well as New Zealand dollar. The main currency pairs contain one of the above currencies against the USD. For example, the following currencies exist on the foreign exchange market: EURUSD, USDJPY or GBPUSD.

Minor currencies
Of course, the foreign exchange market does not only consist of the major currencies, but also includes the minor currencies, the so-called minors. They contain one of the listed currencies without the USD. Traders can invest in the following minor currency pairs, for example: EURGBP, EURCHF or AUDNZD.

Exotic currencies
The third categorisation of currency pairs includes the exotics or exotic currency pairs. These include all foreign currencies that do not fall into the category of major and minor currencies, for example Hong Kong Dollar (HKD), Norwegian Krone (NOK), South African Rand (ZAR) or Thai Baht (THB). If traders wish to trade an exotic currency pair, this includes an exotic currency and a major currency.

Note: Liquidity in the forex market is greatest for the major currencies, as this is where the highest volumes are traded. This makes the currencies less volatile. Clearly less liquid and therefore more risky are exotic currency pairs and minor currencies.

What is Forex: How do quotes on the foreign exchange market work?
How do quotes on the foreign exchange market actually work? Beginning traders in particular are often overwhelmed by this question, because the market is huge and often seems elusive. That’s why we shed some light on the subject and explain the foreign exchange quotations. Trading is done with the so-called bid and ask prices. The bid price expresses the conditions at which traders can buy.

Traders receive the ask price when they sell the currency. In this context, there are also two terms: long and short. If traders buy a currency, it is called a long trade; if they sell the currency, it is called a short trade.

Quotations and exchange rates
The quotations of currency pairs are based on the current exchange rates of the currencies in the pair. In simpler terms, how many units of the second currency will traders receive in exchange for the first currency.

Why are there movements in the forex market?
What actually determines exchange rates and what influences the forex market? Traders should know why exchange rate fluctuations can occur and which dates or decisions can also cause this. Basically, the prices of foreign exchange are determined by supply and demand, but important bank decisions are also responsible for this. In Europe, for example, the ECB’s decision has a significant influence on the development of the euro pairs. Therefore, traders always look forward to the six-weekly ECB Governing Council meeting, where future monetary policy and key interest rates are discussed.

How can traders take advantage of price fluctuations?
Forex what is it? The answer to this question inevitably involves the inclusion of price fluctuations and opportunities for traders in the world’s most liquid market. Professional traders and private investors alike naturally want to make the most of price movements, but often this is not so easy due to the volatility in some forex pairs.

How traders use liquidity
Each currency pair has its own liquidity, which affects price movements. Experience shows that major currencies are much more liquid than minor currencies among exotics, as the trading volume is significantly higher for them. If supply and demand in the market are particularly high, there are fewer significant price fluctuations, which naturally reduces the risk for traders. To do this, traders need to know that demand and supply are influenced by various parties in the market. These include, for example:

Banks
Companies
Importers and exporters
Traders
The main currencies are particularly liquid, as experience shows that they have a high trading limit. For example, experience shows that the EURUSD currency pair moves at an average of 90-120 pips daily. In comparison, the minor pair AUDNZD moves between 50 and 60 pips daily. For the exotic currency pair USDHKD it is even less with an average of 30 pips per day. Of course, these price movements can change due to various events depending on the market situation.

What is Forex: What are the trading costs for traders?
We have already seen that traders in the forex market have countless opportunities for their trading activities. Of course, these do not come free of charge, because if you are active with a broker, you have to plan for trading costs for opening your position. How high are such expenses in the first place and how are they calculated exactly?

Spreads are variable with brokers
The broker offers the foreign exchange trader the possibility to use the interface within the signs and to gain market access. Of course, he wants to be remunerated for this. Usually, forex brokers earn their money with the spreads. This is the difference between the bid and ask price. If we were to trade the EURUSD currency pair with a bid price of 1.26668 and the ask price of 1.26669, the spread would be 0.0001. That makes 1 pip. For the trade to be profitable at all, the value of the forex pair must exceed the spread. In our example, the trade would become profitable if the rate would rise to at least 1.26669 when the traders trade long on EURUSD.

Tip: Experience shows that spreads are significantly lower on major currencies because they have a larger trading volume. Is it easier for traders to generate profits with the minors. For all traders who are at the beginning of their trading career, we therefore recommend that they first start trading the major currencies in order to familiarise themselves with the spreads and conditions on the foreign exchange market.

Successfully trading forex pairs with higher spreads
Of course, there is also the possibility that traders can successfully trade forex pairs with higher spreads. Experience shows that the minor currencies and exotics are many times more expensive and the spreads are higher. This makes it more difficult for traders to make profits with them, but it is still not impossible.

Practical example of trading the higher spreads
We will use a practical example for better illustration and would like to trade the EURCZK currency pair. Since experience shows that the spreads are higher, the price has to make a bigger move to actually become profitable. In our example, we have a bid price of 27.4373 and an ask price of 27.4173. This results in a spread of 0.0200 or 20 pips. From experience, price movements of less than 20 pips daily are extremely unusual for this forex pair.

Therefore, traders would have to hold this position for even several days for it to become profitable. For traders who want to generate profits more quickly, such spreads are therefore rather unsuitable. Low spreads or even scalping are popular for quick profit taking, although scalping is not recommended for beginning traders due to the complexity and the often still lacking experience. Those who nevertheless want to practice rapid profit taking with the many small trades should first orient themselves with a demo account and test this short-term trading strategy without risk.

Forex CFDs: What can they do and what do they involve?
At many brokers, traders can also find contracts for difference, the Forex CFDs. This gives traders, for example, an even wider choice in trading activities on the financial market. This, of course, allows for even more profits at best, even with the inclusion of leverage. Leverage is a significant advantage when it comes to CFD trading, because it multiplies one’s capital in the market and thus brings higher profits at best.

Using leverage correctly: what private investors need to know
Leverage can vary depending on the asset and trading type. Those who act as private investors have significantly lower maximum leverage than professional traders. A size also depends on the assets chosen. For Forex CFDs, the maximum leverage is 1:30 for major currencies and 1:20 for minor currencies. For example, someone who wants to trade 500 USD and uses a leverage of 1:20 for minor currencies can thus bring 10,000 euros of capital into the market. Without leverage, traders would of course have to raise the 10,000 euros themselves. However, the leverage can also bring higher losses without sufficient hedging.

Calculation example for leverage of 1:20
We have a Forex CFD trade with a leverage of 1:20 and deposit 500 Euros. The trade without leverage would amount to 10,000 euros capital. We open our forex trade EURUSD at 1.26766 and close at 1.26966 with a difference of 0.00200. The profit with leverage would be 200 Euros (40 percent); without leverage it would also be 200 Euros (two percent).

Losses with leverage
Of course, CFD trading can also bring losses. We trade our forex pair EURUSD with an opening of 1.26766 and close at 1.26532. This gives us a difference of 0.00234. With leverage, this makes a loss of 234 euros (46.8 per cent) and without leverage 2.34 per cent, for also 234 euros.

Risk limitation with CFDs
As we see in our example, risk limitation is enormously important in CFD trading. So that investors do not end up losing more with Forex CFDs than they actually intended, we recommend opening Stop Loss and Take Profit positions. This allows the traders themselves to set the limits when the positions are closed. In this way, they not only secure the profits, but also limit the losses.

Those who want to can use the automatic positions so that they are closed at the predefined limit without any action on their part. However, there are differences between guaranteed and regular stop loss and take profit positions. In the case of guaranteed positions, the position is actually closed at the specified value, but this usually costs the trader extra. In our opinion, this variant is recommended for particularly volatile price movements.

Note: To spread the risk even more optimally, it is also advisable to trade several assets. The sole focus on Forex CFDs can be interesting, but other assets in the portfolio are also suitable for optimal risk diversification. Traders can also invest in shares CFDs, ETFs or funds, for example, or use cryptocurrencies for their trading activities.

What is Forex Tips
Conclusion: What is Forex? – every trader can profit from the foreign exchange market with a little practice
Forex what is it? – At least trading on the forex market is not a book with seven seals, because with little will to learn and interest in the subject, even inexperienced traders can quickly learn the basics. For this purpose, many brokers even provide free training opportunities and often also a free demo account with virtual credit. Trading on the foreign exchange market offers countless opportunities, because in addition to the main currencies, there are also many minor currencies and interesting exotics whose price development traders can take advantage of.

It is important to forecast the prices and traders can practise this and even get support from numerous tools and indicators of the trading platforms. Risk limitation is also essential for successful trading on the foreign exchange market, because those who only strive to maximise profits and do not limit losses will not enjoy their trading activity for long. To better understand the peculiarities and opportunities on the foreign exchange market, we recommend a free demo account for an uncomplicated and risk-free start in foreign exchange trading.