Markets Overview

How Does Forex Trading Work?

Unlike shares or commodities, forex trading does not take place on exchanges but directly between two parties, in an over-the-counter (OTC) market. The forex market is run by a global network of banks, spread across four major forex trading centres in different time zones: London, New York, Sydney and Tokyo. Because there is no central location, you can trade forex 24 hours a day.

One of the key advantages Forex has over other financial instruments is that relatively small lot sizes can be traded – lot sizes can be as small as 1,000 units (one micro lot). Typically, foreign exchange also involves leverage which in some cases can be as high as 1:300, which is very different to trading shares where no leverage is involved.

Leverage allows traders to trade in the markets in much larger sizes than they actually hold in their trading account. For example, if you had 1:100 leverage you could use a $1,000 deposit to control $100,000 worth of currency. Using leverage can result in an increase in gains, however, if not used correctly it can also result in increased losses.

How to Trade Precious Metals

At CPT trading, precious metals are quoted against the US Dollar. This means that when you trade gold, for example, you speculate on whether the price of an ounce of gold will rise or fall in relation to the US Dollar. Let’s assume that gold is trading at $1,270.60. You think that the price is about to appreciate and buy 100 oz (or 1 lot) of XAU/USD.
 
The price moves higher to 1,275.80 and you decide to sell. Your profit is the difference between the closing and opening price (5.20) multiplied by the number of oz (100). Well done! You just made $520.

How to Trade Indices

An index is made up of a group of shares and is used to track the performance of a country’s economy, a market sector or an exchange. The most traded indices include the Dow Jones Industrial Average, S&P 500, FTSE, DAX, ASX200, NASDAQ, CAC, EuroStoxx and Nikkei 225.

Indices trading is the most popular form of CFD trading.

A stock index is a hugely important part of our financial world, but it is nothing more than a number representing the top shares from a particular exchange. Since indices are just a number, they can’t be traded directly. You need a financial instrument, like CFDs to facilitate your trade. These numbers are calculated using a capitalisation-weighted average, which means the size of each company is taken into account. The more a particular company is worth, the more its share price will affect the index as a whole.  If, on average, the share price of these companies goes up, then the index will rise with them. And if they fall, it will drop.

The amount of money made or lost on a trade depends on the market move and the size of your position.

How to Trade Energy

Energy CFDs allow traders around the world to trade crude oil (Brent, WTI) and natural gas. Crude oil is the most liquid and commonly traded commodity. Unlike the futures market, where crude oil is traded the most, the CFD market is much easier to enter as it allows for a much smaller trading account.

In addition, you can trade energy CFDs without worrying about the expiration dates of futures contracts, as there is no physical delivery of the underlying commodities.

The amount of money made or lost on a trade depends on the market move and the size of your position.


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