Forex trading

An introduction to Forex trading

Spread Betting and CFDs are leveraged products. They carry a high level of risk and are not suitable for all investors. These products can result in losses that exceed your initial stake. You should only speculate with funds that you can afford to lose. Please make sure that you understand the risks involved and seek expert professional advice, if necessary.

All Forex Trading (FX Trading) is determined by a rate of exchange. FX traders simultaneously buy one currency and sell the other, with the hope of making a profit when the value of the currencies change.

An example of FX trading

The US dollar is trading against the Japanese Yen at 116.99/117.02
You think the US dollar will strengthen against the Yen so you decide to buy 500,000 USD at 117.02
Later that day you see that the dollar has risen to 117.65/117.68 and you decide to sell your dollars at 117.65

Your revenue is calculated as follows:

$500,000 (size of position) x (117.65 [sell price] - 117.02 [buy price]) = ¥315,000. This is converted back into dollars ¥315,000 ÷ 117.65 = $2,677 – at the end of the day using the mid-close price.