The global foreign exchange market is the largest market in the world. The 3.2 trillion U.S dollars daily turnout dwarfs the joint turnout of all the world's stock and bond markets.
There are numerous reasons for the fame of foreign exchange trading, but amongst the most important are the leverage available, the high liquidity 24 hours a day and the minimal dealing costs associated with trading.
Of course many public organisations participate fully due to the currency exposures created by their import and export activities, but the main part of the turnover is accounted for by financial institutions.
In the following article, we would like to bring in some of the fundamental ideas of foreign exchange trading. When trading US dollars against Singapore dollars, the normal way to trade is buying or selling a fixed amount of US dollars, i.e. one-thousand U.S dollars . When closing the position, the opposite trade is done, again one-thousand U.S dollars . The profit or loss will be apparent in the change of the amount of SGD credited and debited for the two transactions. In other words, your profit or loss will be denominated in SGD, which is known as the price currency. As part of our service, Saxo Bank will automatically exchange your profits and losses into your base currency if you require this. Dealing Spread, but No CommissionsWhen trading foreign exchange, you are quoted a dealing spread offering you a buying and a selling level for your trade. Once you accept the offered price and receive confirmation from our dealers, the trade is done. There is no need to call an exchange floor. There are no other time-consuming delays. This is possible due to live streaming prices, which are also a great advantage in times of fast-moving markets: You can see where the market is trading and you know whether your orders are filled or not. The dealing spread is typically 3-5 points in normal market conditions. This means that you can sell US dollars against the euro at 1.7780 and buy at 1.7785. There are no further costs, commissions or exchange fees.This gives you the assurance that you can get in and out of your trades at very low slippage and many traders are therefore active intra-day traders, given that a typical day in USD/EUR presents price swings of 150-200 points.Spot and forward tradingWhen you trade foreign exchange you are normally quoted a spot price. This means that if you take no further steps, your trade will be settled after two business days. This ensures that your trades are undertaken subject to supervision by regulatory authorities for your own protection and security. If you are a commercial customer, you may need to convert the currencies for international payments. If you are an investor, you will normally want to swap your trade forward to a later date. This can be undertaken on a daily basis or for a longer period at a time. Often investors will swap their trades forward anywhere from a week or two up to several months depending on the time frame of the investment.
with the necessary knowledge of the market's functions can benefit from the advantages stated
Margin TradingForeign exchange is normally traded on margin. A relatively small deposit can control much larger positions in the market. For trading the main currencies, Saxo Bank requires a 1% margin deposit. This means that in order to trade 1,000,000 dollars, you need to place just USD 10,000 by way of security.In other words, you will have got a gearing of up to 100 times. This means that a change of, say 2%, in the underlying value of your trade will result in a 200% profit or loss on your deposit. See below for specific examples. As you can see, this calls for a very disciplined approach to trading as both profit opportunities and potential risks are very large indeed. About base Currency and Variable Currency, When you trade, you will always trade a combination of dual currencies. For example, you will buy US dollars and sell euro. Or buy euro and sell Japanese yen, or any other combination of dozens of large traded currencies. But there is always a long and a short side to a trade, which means that you are speculating on the prospect of one of the currencies strengthening in relation to the other.