The foreign exchange market (Forex market) is the market in which currencies are traded. Currency Trading is the world’s largest market, consisting of trillions in daily volume and as investors learn more and become more interested, the market continues to grow rapidly.
Not only is the Forex market the largest market in the world, but it is also the most liquid, differentiating it from the other markets. In addition, there is no central marketplace for the exchange of currency, but instead the trading is conducted over-the-counter. Unlike the stock market, this decentralization of the market allows traders to choose from a number of different dealers to make trades with and allows for comparison of prices. Typically, the larger a dealer is the better access they have to pricing at the largest banks in the world, and are then able to pass that on to their clients. The spot currency market is open twenty-four hours a day, five days a week, with currencies being traded around the world in all of the major financial centers.
All trades that take place in the foreign exchange market involve the buying of one currency and the selling of another currency simultaneously. This is because the value of one currency is determined by its comparison to another currency. There are four major currency pairs that are traded most often in the foreign exchange market. These include the EUR/USD, USD/JPY, GBP/USD, and USD/CHF.
A CFD (Contract for difference) is a tradable instrument that mirrors the movements of the asset underlying it. For example can you trade on movements in the stock market without ever holding a stock. CFDs are traded between individual traders and CFD providers (Brokers).
CFDs were introduced to retail traders in the late 1990 and quicly became popular as it provides much higher leverage than traditional trading. Standard leverage in the CFD market begins as low as a 2% margin requirement. Depending on the underlying asset (shares for example), margin requirements may go up to 20%. Lower margin requirements mean less capital outlay for the trader/investor, and greater potential returns. However, increased leverage can also magnify losses.
Although no firm figures are available as trading is over-the-counter, it is estimated that CFD related hedging accounts for somewhere between 20% and 40% the volume on the London Stock Exchange (LSE).
Binary options are a simple way to trade price fluctuations in multiple global markets. Most people will trade binaries as 'high-low' where you simply chose if the price will go up or down, on intervals as short as one minute. You can make up towards 70-90% return on one single trade, but if the price goes against you, you will lose the full amount placed on the trade.
Binary Options were introduced to retail traders in 2008, on the Chicago Board of Exchange (CBOE). Outside the US it has been mainly unregulated until 2012/2013 when Cyprus classified it as financial instruments, and shortly after Malta changed its classification from gambling to a financial instrument (most brokers were setup in Cyprus and Malta at the time). Today Binary Options requires a license in Europe, but you will find unregulated brokers outside Europe. We recommend that you trade with a well-known licensed broker.
Binary Options are gaining popularity, but are still small compared to Forex and CFDs. With its gambling alike setup most professional traders will prefer to trade Forex and CFDs, for those who don’t want to spend a lot of time learning to trade, Binary Options are a simple way to get started as a trader.
Brokers provide traders with access to a trading platform that allows them to buy and sell Forex and CFDs, and to place trades on Binary Options.
Traditionally trading often take place by phone, customers and traders phone in their orders. When it comes to retail trading in Forex, CFDs and Binary Options the trading normally take place on an online platform, provided to you by the broker. The most used platform is the MetaTrader platform, but there are a few other platforms as well. With Binary Options being very basic, you will often trade on a web interface. The key to succeed in trading is to find a broker you can trust, which is not as easy as it sounds. Several well-known brokers have been fined for manipulating their dealing desk, which caused their clients to lose money on what would have been winning trades. This is why ProTradeClub only works with a few brokers who we have tested and know we can trust.