Forex CFD – LongShort. The most used financial instrument to trade in Forex by retail investors and professional gtraders is certainly tha of CFDs. The latter stands for Contract for Difference.
It is a derivative financial instrument as the trader will own the selected asset directly in his portfolio, in this case a currency. The trader’s gain will be the difference between the start and end value of a given exchange rate.
A strength of CFDs is the possibility to position themselves both long and short on each asset. It is even easier to talk about currencies. It is advisable to invest in Forex because for a trader it is very easy to guess what exactly it means to be long and what exactly it means to be short.
By taking a long position, a trader is investing by sustaining a rise in the first of the two currencies of the pair; by taking a short position, a trader believes in the appreciation of the second of the two currencies.
To give a practical example if you were faced with the EUR/USD exchange rate, in the case of “Purchase” (long) you would be investing in the euro, in the case of “Sale” (short) instead of the dollar.
You can also read how to trade CFDs.
Forex CFD – Leverage
Another reason why it is worth investing in Forex is certainly linked to the other peculiarity of CFDs, namely leverage. It allows an investment to become larger thanks to a “loan” from the broker.
For example, with a leverage of 30:1 a 100€ investment automatically becomes 3,000€. The gains or losses obtained from or suffered by the CFD transaction on a currency pair will be related not to the first figure, but to the second, that is to say, to the amount generated by the leverage.
Care should be taken because leverage can bring the amount invested very close to zero in the event of excessive losses. The latest ESMA (European Securities and Markets Authority) legislation provides for the protection of negative balances. A trader cannot lose more than he invests.
Of those 3.000€ mentioned previously as we know 100€ have been invested by the trader, while 2.900€ have been “lent” by the financial intermediary, who at the end of the operation takes them back in any case, both if the trade is successful and if the operation is not successful.
We emphasize that the broker does not lose any money and has first of all the interest in paying out this loan. In fact, the latter allows its members to open more substantial positions.
It is worth investing in Forex because thanks to these regulated and reliable brokers we can operate on exchange rates by investing a reduced amount of money. In this way the ports of Forex are accessible to a large number of people.
Technical and Fundamental Analysis
In order to trade well it is necessary to develop a winning and effective strategy. It is absolutely personal and takes shape over time, but it is certainly based on a good technical and fundamental analysis.
It is advisable to invest in Forex following this logic if you do not want to lose your money, but to make it multiply!
Technical (or graphic) analysis is nothing more than the study of graphs based on the previous trend. Working on the graphs you will find that many price movements are not random, but follow very precise logics.
To learn more about this topic read: Technical analysis and graphical analysis.
The fundamental analysis is based on the news about the selected asset, in our case the Forex currencies. What is the most influential information on the development of the value of currency pairs?
First of all, the monetary policies of the central banks. A monetary policy that raises interest rates and thus the cost of money could raise the reference currency. Otherwise, a downturn could be assumed.
On the other hand, economic data for the countries of reference are published on a daily basis. These data are also called market mover because they condition the movement of market prices. It is clear that positive employment or GDP figures could push the national currency up, while the opposite is true.
It is essential to use the conditional because nothing is certain in trading and do not trust those who give you certainty of gain because it does not exist. However, you can certainly assume a future market movement and the tools to do so in Forex are many!
Forex Broker: IQ Option
Including the reason why it is worth investing in Forex now you need to think about where. In order to trade currency pairs you need a financial intermediary, i.e. a broker. The first one we suggest you is IQ Option.
This broker was created to offer its users binary options trading, but these have been banned by ESMA, but this is certainly no problem, as IQ Option has a large number of financial assets available that are tradable with CFDs, including currency pairs.
The interface of the IQ Option platform is highly appreciated by users due to its ease of use.
The trader will easily reach all the assets present, including Forex currency pairs, ETFs, commodities, equities and cryptocurrencies.
The novelty on the latter is Hodly, an app owned by IQ Option that allows the purchase, sale and storage of 13 virtual coins on the broker.