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Lovisa Alvin
Lovisa Alvin
Articles (41) 

Understanding Forex Brokers, Margin and Leverage

Most trading is done on 6 currency pairs

April 04, 2017

Forex, or FX, is an abbreviation for foreign exchange, the trade in international currencies. The industry is based on buying currencies that are rising in value and selling those that are falling. Forex brokers enable traders to speculate on these price movements to make money by taking up trading positions over a range of time frames.

Financial leverage is a service provided by most forex brokers, which increases the profit potential of each transaction. Forex CFDs are leveraged products, which means that they are traded with a margin. Traders therefore do not have to fund the entire underlying asset, only a small part. This margin is deposited into an investment account by the financial service provider.

The average daily turnover of the global forex market is more than $3 trillion, making it by far the largest financial market in the world. Activity is focused on four cities: London, Tokyo, New York and Sydney. This allows the market to remain open 24 hours a day from Sunday 23:00 GMT (when trading begins in Sydney) until Friday 23:00 GMT (when trading closes in New York). There is no physical "Forex Exchange" as is the case with the world’s stock markets – all trades take place digitally.

Currency pairs

The bulk of the world’s Forex trading is on six major currency pairs: EUR/USD (euro and U.S. dollar), GBP/USD (British pound and U.S. dollar), AUD/USD (Australian dollar and U.S. dollar), USD/CAD (U.S. dollar and Canadian dollar), USD/CHF (U.S. dollar and Swiss franc) and USD/JPY (U.S. dollar and Japanese yen). The first currency is referred to as the "base currency" while the second is known as the "counter currency" (also referred to as "counter" or "quote"). The rate at which the GBP/USD pair is traded shows the number of U.S. dollars that can be purchased with one British pound. In other words, the base currency is expressed as a whole unit, such as 1.00 GBP, which is worth USD 1.32462 – the quote currency.

Trading currency pairs online

Most brokers offer their services through online trading platforms, providing access to the Forex market. The broker does the actual buying and selling, acting on the orders of the trader. Due to the ever-growing popularity of the Forex market, there are now thousands of online brokers competing for business, resulting in lower spreads across the board. The spread – essentially the commission charged by the Forex broker is the difference between the bid and ask price.

Some of the best spreads are currently offered by UFX. Widely recognized as a leader in the industry, this financial services provider is also renowned for the speed and accuracy of its intuitive trading platform, which caters to the daily needs of traders of all levels of experience.

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