International currency trading, is made possible by the foreign exchange market, or forex for short. The value of the currencies against each other is established in the market by the aggregate of buyers and sellers.
The forex market aids international trade by facilitating the conversion of currency, as well as giving speculation on the currency values individually.
In the forex, strong currencies have high prices and have high exchange rates when trading against other currencies. Weak currencies have falling prices and have low exchange rates when trading against other currencies.
Forex pairs in the forex market are the representation of exchange between two different named currencies. The value and price of each currency is relative as it is determined by another currency. New traders in the forex should focus on the major pairs like GBP/USD, EUR/USD, EUR/GBP and USD/JPY. Though it is still possible to trade minor pairs with proper speculation on the growth of the currency in that country, like the Hungarian forint or South African rand.
CFD or Spread Betting
Spread betting allows traders to purchase and sell forex pairs for a definite number relative to price movements. An example is buying EUR/USD for £5 per pip – which is the smallest trading unit. Every pip that the price rises gains you £5, and every pip the price dips, you lose £5. Track your profit and loos with this simple method.
CFD is closer to the experience of trading currencies. Contracts are opened which represent forex pair trades with a given amount. An example is 1 EUR/GBP CFD for 0.8000, which depicts an exchange of €10,000 for £8,000.
If in the future you decide to sell that CFD for 0.8500, it would give you profit of £8,500 from selling minus the original price you bought if for which was £8,000 that gives you £500 profit.
One advantage of CFD and spread betting is that you only require a fraction of your trade value on your account. This gives you room for leverage and is intended to cover potential losses.