Learn about Financial Markets
- What is Forex?
- What is a lot?
- What is spread?
- What does a “long” or a “short” position mean?
- What is Margin / Leverage?
- What are CFDs?
- What are Futures?
The foreign exchange (‘currencies, Forex or FX’) is a market where participants buy, sell, exchange and speculate on currencies. In particular, it consists of trading one currency for another, ex: EURUSD. This means trading the Euro against the US dollar. Forex and related markets is the largest and most liquid financial market in the world, where the average trade consists of trillions per day.Trading foreign exchange may have various advantages because of its transparency, direct dealing, significant trading volumes, extreme liquidity and the great number of participants in the market including governments, central banks, banks, financial institutions, corporations, private investors, etc…In addition, due to the different time zones of the major financial centers, starting from New York to Australia, Tokyo, Hong Kong, and Europe, the Forex market is open 24 hours a day (except on weekends), usually from Sunday 00:00 until Friday 23:15 (GMT+2 Winter time, GMT+3 Summer time). 1. Currencies that are traded against the US dollar are called Majors and make up the greatest number of foreign currency trades.
- USD (US Dollar)
- EUR (Euro)
- GBP (British pound)
- JPY (Japanese yen)
- CHF (Swiss Franc)
- AUD (Australian dollar)
- CAD (Canadian dollar)
Ex: AUDUSD / EURUSD / GBPUSD…
2. Currencies that are traded against each other excluding the US dollar are called Crosses:Ex: CADJPY / EURAUD / GBPCHF…
When trading Forex, whether majors or crosses, the first currency (called base currency) represents the direction and the second currency (called counter currency) indicates the profit or loss.Windsor Brokers Ltd. offers trading in 27 currency pairs.
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A lot is the standard unit size of a transaction. Depending on the financial instrument traded, the lot size is determined; i.e. a standard lot traded at Windsor for Forex trading usually consists of a contract size of 100,000 (units of the base currency). The contract size is then proportionate as per the lot indication - standard, mini or micro lot. As a result, a standard contract size of the GBPUSD is 100,000 GBP then the mini lot consists of a contract size of 10,000 GBP and the micro lot consists of 1,000 GBP accordingly.
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When trading any financial instrument, you are offered two prices; the Bid price and Ask price. The Bid price is the selling price and the Ask price refers to the price offered for buying. The difference between the Bid and Ask is called Spread and varies for each instrument traded. The measurement between the two prices is usually referred to as:
- pips [for Forex Currency Pairs]
- cents [for Spot Precious Metals]
- ticks [for Future (OTC): Currencies, Precious Metals, Commodities and CFDs USA]
- points [for Future (OTC): Indices, Energies, CFD Indices and CFD Energies]
An advantage of trading currency pairs at Windsor Brokers Ltd. is the competitive spreads offered, which consist of as low as 2-3 pips on majors.
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A 'long' position or ‘going long’ is a market position where the client buys a financial instrument with the intent to sell it at a later stage, at a higher price. A "short" position or ‘going short’ is a market position where the client sells a financial instrument with the intent to buy it at a later stage, at a lower price.
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Margin is a guarantee for holding an open position. The amount is blocked from the client’s account when opening a new position and returned (unblocked) to the client’s trading account once the position is closed or hedged. Leverage is the use of various financial instruments or borrowed capital, such as margin, to increase the potential return of an investment. Windsor offers trading with as low as 1% margin or a 1:100 leverage. A client can either buy or sell a Standard contract (1 standard lot) worth US$ 100,000 by using only US$ 1,000 as a margin. In the same way, a client may buy or sell portion of a Standard contract, a Mini contract (1 mini lot) worth US$ 10,000 with a margin requirement of US$ 100 only. Each client is required to monitor the margin requirement of his/her trading account. For example, for opening majority of financial instruments, for 2 standard lots, the trading account must have at least US$ 2,000 available for trading. This applies when the equity/margin ratio is 100% (leverage 1:100). In case of an adverse market move, when the available margin in the account falls below US$ 2,000, the trading account will be under the 100% required margin and will be on Margin Call. Margin call is a demand for additional funds from the client to bring the equity of the trading account to a required minimum level and to cover for a possible adverse movement in price of the financial instrument, at the market. Equity to margin should not fall under 5% for major financial instruments on weekdays and should not fall under 50% on weekends for the majority of financial instruments traded with Windsor (leverage 1:100).
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A CFD (Contract for Difference) traded with Windsor are equity derivatives allowing investors to take positions on any CFDs, offered by Windsor for trading, without the need to buy or sell the share itself, and speculate on share price movement. It is therefore an agreement between two parties to exchange the difference between the price of the opening and the closing of the contract (hence the name – contract for difference). Upon closing the contract, the profit or loss is calculated by multiplying the difference between the buying and selling price with the number of shares. The major benefit of trading a CFD is the fact that the client can trade on margin – meaning client can trade a full portfolio of CFDs without having to tie up large amounts of capital. At Windsor, we offer the following CFD contracts for trading:
- CFD Indices Big Dow Jones with spread
- CFD Energies Light Sweet Crude Oil
- CFD USA29 of the major USA company shares (i.e. Ford, Yahoo, eBay, etc…)
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A future contract is a contractual agreement to buy or sell a specified commodity or financial instrument at a predetermined price, on a set date in the future. Futures can be traded both on the trading floor of a futures exchange or through an electronic platform (OTC). Trading futures is made by buying or selling futures contracts which are standardized according to the type of the financial instrument, quantity and expiry date of each instrument. A future contract is specified with the month during which the delivery or settlement is to occur i.e. if the product is gold and delivery is in July then the price quoted/traded is for July Gold.All futures traded include therefore, a specific termination date consisting of the contract name, expiry month and year. The standard symbols used for each traded month, by Windsor are:
[Jan:January] - [Feb:February] - [Mar:March] - [Apr:April] - [May:May] - [Jun:June] [Jul:July] - [Aug:August] - [Sep:September] - [Oct:October] - [Nov:November] - [Dec:December]
- Future (OTC) Currencies Euro, British Pound, Japanese Yen, Swiss Franc, Canadian Dollar, Australian Dollar
- Future (OTC) Indices Big Dow Jones, Mini Nasdaq 100, Mini S&P 500
- Future (OTC) Precious Metals Gold, Silver
- Future (OTC) Energies Light Sweet Crude Oil, Mini Natural Gas
- Future (OTC) Commodities Coffee “C”