Buy or sell: Your first 3 minutes at Admiral Markets
Reading time: 3 minutes
If you're totally new to trading the markets, here's a quick overview for you. In just three minutes, you can understand the basics of Forex and CFD trading and learn how to get started!
Want more? Then take a look at our ultimate beginner's guide to Forex trading.
What is Forex?
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.
What are CFDs?
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.
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
The potential of 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.
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%
How much does it cost to trade?
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!
How to get started
If you're ready to try trading the markets you can start trading today risk free with a FREE demo account - just click the banner below to get started!
About Admiral Markets
Admiral Markets is a multi-award winning, globally regulated Forex and CFD broker, offering trading on over 8,000 financial instruments via the world's most popular trading platforms: MetaTrader 4 and MetaTrader 5. Start trading today!
This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.