Forex, FX stands for FOReign EXchange. The Foreign Exchange Market is the biggest financial market in the world; with a daily turnover of over $5 trillion dollars (i.e. $5,000,000,000,000). Almost all forex trades are of speculative nature; without physical delivery of currency, it’s basically numbers flickering around on computer screens. Chances are your currency trades will be of the speculative kind, too.
So what is forex exactly? Forex Trading is the simultaneous buying of one currency and selling of another. Every deal goes through intermediaries called brokers or dealers. Currencies are traded in pairs, for example Euro/ US Dollar (EUR/USD), US Dollar/ Japanese Yen (USD/JPY), US Dollar/ Canadian Dollar (USD/CAD).
As you are not buying anything physical really, forex trading can be somewhat confusing. So, assume that when you buy a currency, it’s like you’re buying a piece of a country as the rate of exchange of a given currency against the other currencies is a reflection of the state of the economy of this given country in comparison with the economies of the other countries.
As opposed to other financial markets such as, for instance, the New York Stock Exchange, the London Stock Exchange, Bolsa de Madrid or Bursa Malaysia, the Forex Market is not based in any particular headquarters. It has no particular central exchange. The Forex Market is an over-the-counter (OTC) Market – an Interbank Market, meaning that all the trades are executed electronically in a network of banks. The forex market “is open” non-stop for over 5 days a week, from late Sunday until the end of Friday.
CFD [Contract for Difference] is an agreement between two parties to exchange the difference between the opening price and closing price of a contract. CFDs are derivative products which allow you trade on live market price movements without actually owning the underlying instrument (shares, indices, single stock, commodity) on which your contract is based.
CFDs allow trading on the future movement of market prices regardless of whether the underlying markets are rising or falling. They allow traders access to markets which they would not normally be able to invest in.