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Currency trading explained
First of all, let’s get one thing clear: It doesn’t matter if you use the term currencies, forex or FX, it all means the same thing. Now that we’ve got this sorted out, let’s take a quick look at currency trading, which essentially means the act of buying and selling currencies. People have been doing this for centuries. Every time you go abroad and want to exchange the currency you have in your pocket with the local currency, you are conducting in currency trading.
Currency trading also takes place on a larger scale, when people buy large sums of currencies, attempting to take advantage of currency exchange rates. Many currency traders use market news and economic calendars to try and collect information that could help them make trading decisions.
Trading CFDs on currencies
One of the features of currency trading in the form of CFDs is leverage. This trading tool allows you to open large deals with a relatively small investment. It increases your trading power, but at the same time also increases risk. Because Vestle is a regulated broker, our maximum leverage rates reflect the rates set by the regulator. Leverage rates depend on the CFD instrument you trade. For currencies, the maximum leverage allowed is 30:1.
Want an example? Sure.
Let’s say you have £500 and you want to open a deal on a popular currency pair – the EUR/USD. With your £500, you can open a deal worth up to £15,000. Why? Because £500 (investment) x 30 (leverage) = £15,000.
Got it? Great. Now, let’s talk about short and long trading.
Sell or Buy?
When trading currency CFDs, you can choose to Buy (also known as ‘go short’ or ‘short trading’) or Sell (also known as ‘go short’ or ‘short trading’). This means that you can open deals regardless if you believe the price of an instrument will increase or decrease. When you go short, you sell and when you go long, you buy.
A simple way to look at it is as follows:
When you think the price of a currency pair will increase, open a ‘buy’ deal. When you think it will decrease, open a ‘sell’ deal.
How to open a currency CFD deal with Vestle
- Select the currency pair you want to trade
- Define the size of your deal
- Decide if you want to buy or sell
- Click ‘Deal’
You can always choose to define Stop Loss and Take Profit levels. These orders can assist you in managing open deals and to better manage risks.
What can affect the price of currencies?
There are numerous currencies worldwide, hence there are many factors that can play a role in affecting their prices. The following list includes a few leading factors that can be involved in currency price changes:
- The level of stability in global economy
- National deficits
- Political and geopolitical factors
- Natural disasters
- Unemployment data
- Quantitative easing
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