Forex trading is the simultaneous buying of one currency and selling of another in a pair. You might do this if you think that one currency is going to appreciate in value against the other or vice versa.
When you trade currencies with STO, you are trading in the largest, most liquid market in the world. The average traded value of the foreign exchange (forex) market exceeds $1.9 trillion per day – far exceeding equity and commodity markets combined.
Currencies are traded as pairs, with the base currency expressed first. For example, the US dollar versus the Japanese yen is written as USDJPY. The ‘major’ and most liquid forex traded currencies are US dollar (USD), euro (EUR), British pound sterling (GBP), Japanese yen (JPY), and the Swiss franc (CHF).
An example of a forex trade would be to buy the euro (EUR) and to sell the US dollar (USD). You might do this if you think that the euro is bottoming and may be due a rally against the US dollar. Here you might buy the EURUSD pair at 1.2705. A week later if EURUSD had risen to 1.2905 you would have made 200 pips profit on your trade. If the pair had fallen to 1.2605 you would have lost 100 pips. There will be financing charges applicable to this position, see our examples section for more information on this.
As trading forex through CFDs is leveraged, you only have to put up a fraction of the value of the position as a deposit. With STO the margin requirement on forex pairs starts from only 0.2% so if you had bought €100,000 worth of EURUSD at 1.2705, your position is worth $127,050 and you need to make a deposit of $254.10. Please be aware, however, that as CFDs are leveraged products your losses can also quickly escalate and you may lose most, if not all of your account balance, including your initial deposit and any profits on closed trades.
Risk Warning: Forex and CFDs are leveraged products that incur a high level of risk and it is possible that losses exceed your investment. Please ensure that you understand the risks involved and seek independent advice if necessary. Please read carefully our Risk Warning