Overview of the FX markets
The FX market is the largest financial market in the world by volume. Nearly $5.1 trillion (according to BIS 2016 volume survey) of foreign currencies trade back and forth across the FX market every day.
What is FX trading?
FX Trading is the name given to trading one currency against another. This is the basic concept of FX trading (exchange rates are moving constantly). If you go on holiday for example, you may sell your £ and buy US$ (if you are visiting the USA). For example you may find £500 will buy you US$800 at the bank on a given day. Then the following day the rate has moved and you are now receiving fewer dollars in return.
All Foreign Exchange rates are quoted in pairs. For example if we were selling Sterling (GBP) and buying Dollars (USD), this would be written in shorthand as GBPUSD. In this example GBP is referred to as the base currency, and USD is referred to as the counter currency. The price at which this hypothetical trade would be carried out is the exchange rate between the two currencies.
One other advantage of trading with Capital Index is that you do not have to pay the full cost of the trade upfront. FX is traded on leverage. If you are trading on 1:100 leverage this means you will pay 1% of the value of your trade as a deposit; thus freeing up your funds.
What moves the markets?
Ultimately, it is investors and speculators who make currency pairs move as they buy and sell different currencies, but these market participants buy and sell for a reason. Either they see something happening fundamentally in the global economy that makes them believe a currency is going to get stronger or get weaker. In other words, they watch the fundamentals and make their decisions according to what they see. Fundamentals make currency pairs move. If the economic fundamentals in the United Kingdom are improving, the pound (GBP) will most likely be getting stronger because market forces dictate this. Alternatively, if the economic fundamentals in the United Kingdom are declining, the pound will most likely be getting weaker because FX investors will be selling pounds.
Precious metals are paired with USD and traded in the same way as FX. When a unit of gold is bought a unit of the currency involved is sold. In recent times gold, and to some degree silver have been heavily traded due to the 2008 recession it is used as a hedge against risk. At Capital Index we enable clients to take both long and short positions to take advantage of price movements in either direction.
Capital Index also offers the ability to trade on some soft commodities such as coffee and cocoa and also allows you to speculate on the energy markets with trading available on Oil both WTI and Brent and also the natural gas and gas oil markets.
Stock indices are another means of trading the market, traders usually trade these based off economic fundamentals. The macro picture of the chosen stock market is generally reflected in the price action of the headline price of the total index. You can trade on an index in exactly the same way you would on FX, commodities and precious metals.