Buy or Sell? Your First Few Minutes at Admirals
If you're totally new to trading the markets, here's a quick overview for you. In just a few minutes, you can understand the basics of Forex and CFD trading and learn how to get started!
Table of Contents
Buying and Selling Currency
Forex, also known as the foreign exchange market and FX, is the marketplace where currencies are traded. It's the world's largest, most liquid market with an estimated 5.3 billion USD being traded every day.
Currencies are traded in pairs, and traders speculate on whether one currency will rise or fall against another. The EUR/USD, for example, measures the value of the Euro against the US dollar.
Buying and Selling Shares
CFD stands for 'Contract for Difference', and a CFD is a contract that represents the price moments of financial assets, like Forex pairs, commodities like gold and oil, cryptocurrencies and more. These assets are known as 'underlying' assets. Learn more about CFDs.
If you are interested in boosting your trading knowledge further, why not tune in to one of our free webinars? Discover the latest trading trends, get actionable strategies and enjoy complimentary tools together with our in house experts! Click the banner below to get started:
Long or Short: How to Trade?
One of the benefits of trading CFDs is that you can trade long or short. What does this mean?
Traditional investing focuses on buying and holding - you buy and investment, hold it until it's value increases, and then sell it for a higher price. With CFDs, you can open a buy trade (or a 'long' trade), which means you open the trade with the hope that the value of the underlying asset goes up and you can close the trade (sell the contract) at a higher price.
You can also trade with the expectation that an underlying asset will fall in value. In this case, you open a sell trade (or a 'short' trade), and close the trade (or buy back the contract) at a lower price, and make a profit on the difference.
Whether you're trading long or short, if your trade runs in the right direction, you will make a profit. If the market moves against your assumption, you will make a loss. The benefit of CFDs is that you can profit in either direction
Buying and Selling Currency | Leverage
Another benefit of CFD trading is leverage. In traditional investing, your investments are limited by the amount of capital you have to invest. If you have EUR 500, for example, you can only invest in EUR 500 of an asset.
CFD trading is leveraged trading, which means you can access a much wider portion of the market than the amount of capital on your account. Retail clients, for instance, can open a Forex trade that's valued at up to 30 times more than their deposit (so with EUR 500, you can open a trade on up to EUR 15,000 of the currency pair you are trading).
This then means that your profits (and losses) are magnified to the same extent.
Opportunity and risk always goes hand in hand. If a broker only tells you about the profits but not the potential losses of trading, this should be seen as a red flag. Any good broker will be transparent about both profits and losses.
Would you like to practice your trading under real and live market conditions, with virtual currency? Register for a free demo account, and practice your skills before taking on the live markets! Click the link below to register now:
Let's do an example: DAX30
You think that the German DAX index will go up in value, so you decide to open a long trade on the DAX30 CFD.
When you open the trade, the price of the DAX30 is 10,000 points, and every 1 point movement is valued at 1 Euro.
The good news is that you do not need to invest EUR 10,000 to buy one contract of the DAX30. If the leverage is 1:20, you can buy one contract for 1/20 of the value, or EUR 500. However, you still benefit from the full value of every movement in the DAX. If the DAX30 moves from 10,000 to 10,050, you will make a profit of EUR 50 - a 10% return on your investment of EUR 500.
Remember that leverage works both ways, though - if the DAX30 moves from 10,000 to 9,050, you will make a loss of EUR 50, or 10%.
DAX30 CFD trade
DAX opens at 10,000 and rises to 10,050
You make EUR 50, or 10%
You make EUR 50, or 0.5%
DAX opens at 10,000 and drops to 9,050
You lose EUR 50, or 10%
You lose EUR 50, or 0.5%
What is the Cost of Trading?
There are three main costs of trading - spreads, swaps and commissions.
- Spreads: The spread is the difference between the buy and sell price of a financial instrument. Learn more about spreads in our beginner's guide.
- Swaps: If you keep trades open overnight, an interest fee ('adjustment') gets charged at 23:59 in the platform's time zone.
- Commissions: Some instruments are also charged a commission for opening and closing trades, such as Share and ETF CFDs.
When trading, any costs will eat into your profits, which is why it's best to choose a broker that offers competitive spreads, swaps and commissions. Smaller costs means you could make a higher profit!
Want more? Then take a look at our ultimate beginner's guide to Forex trading.
INFORMATION ABOUT ANALYTICAL MATERIALS:
The given data provides additional information regarding all analysis, estimates, prognosis, forecasts, market reviews, weekly outlooks or other similar assessments or information (hereinafter “Analysis”) published on the websites of Admiral Markets investment firms operating under the Admiral Markets and Admirals trademarks (hereinafter “Admirals”). Before making any investment decisions please pay close attention to the following:
1. This is a marketing communication. The content is published for informative purposes only and is in no way to be construed as investment advice or recommendation. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and that it is not subject to any prohibition on dealing ahead of the dissemination of investment research.
2. Any investment decision is made by each client alone whereas Admirals shall not be responsible for any loss or damage arising from any such decision, whether or not based on the content.
3. With view to protecting the interests of our clients and the objectivity of the Analysis, Admirals has established relevant internal procedures for prevention and management of conflicts of interest.
4. The Analysis is prepared by an independent analyst (hereinafter “Author”) based on the personal estimations of Alexandros Theophanopoulos (SEO and Content Specialist).
5. Whilst every reasonable effort is taken to ensure that all sources of the content are reliable and that all information is presented, as much as possible, in an understandable, timely, precise and complete manner, Admirals does not guarantee the accuracy or completeness of any information contained within the Analysis.
6. Any kind of past or modeled performance of financial instruments indicated within the content should not be construed as an express or implied promise, guarantee or implication by Admirals for any future performance. The value of the financial instrument may both increase and decrease and the preservation of the asset value is not guaranteed.
7. Leveraged products (including contracts for difference) are speculative in nature and may result in losses or profit. Before you start trading, please ensure that you fully understand the risks involved.