Foreign exchange, also known as forex or FX, is one of the world’s most liquid markets – boasting a whopping $6.6 trillion in trade volume each day in the overall FX market (inclusive of forex forwards, futures and more); this, according to the Bank for International Settlements (BIS) triennial report of 2019. While much of this volume comes from everyday monetary transactions in foreign countries, some people seek to exchange currencies with the explicit intention to make a profit.
On the other hand, forex trades made through most online brokers would be limited to the pricing and liquidity the provider offers and not from the broader market. However, you can still find trading opportunities in these markets as many of them closely track the real value of the underlying currency pairs.
Buying and selling currencies to make a profit can be complex. This course will delve into some of the key things to know about forex trading. You’ll learn how to short a forex pair, which factors affect forex spreads, the relationship between leverage and margin and much more.
WHAT IS A SLIPPAGE?
In this course you’ll find exercises, charts and illustrations demonstrating important things you should know about forex trading. To give you a flavour of what to expect, here’s an extract explaining how forex slippage occurs:
Slippage occurs when a trade order is filled at a price that’s different to the requested price. This normally happens during periods of high volatility, or when a ‘sell’ order can’t be matched at your desired price within the timeframe you set.
Slippage in forex tends to be seen in a negative light. This can be true, as your order can be filled (or your stop can be executed) at a worse price than you intended. This is called negative slippage.
However, this normal market occurrence can also be a good thing. When your forex trading orders are sent out to be filled by a liquidity provider or bank, they’re filled at the best available price – even when the fill price below is the price requested. This is called positive slippage.
Let’s use an example to give you context.
Say you try to buy EUR/USD at its current market rate, assuming it’s 1.3650. When the order is filled, there are three potential outcomes: no slippage, positive slippage or negative slippage.
The first possible outcome is no slippage. This means that your order is submitted, and the best available buy price being offered is 1.3650 – the exact price you requested.
Another possible outcome is that your order will experience positive slippage. So, you submit your order, but the best available buy price suddenly changes to 1.3640. This is 10 pips below your requested price, meaning your order will then filled at this better price.
Lastly, your order can be subject to negative slippage. This is when your order is submitted, but the best available buy price suddenly changes to 1.3660 – 10 pips above your requested price – meaning your trade will be opened at a worse price.
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Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. You could sustain a loss of some or all of your initial investment and should not invest money that you cannot afford to lose.
Leveraged trading in foreign currency or off-exchange products on margin carries significant risk and may not be suitable for all investors. We advise you to carefully consider whether trading is appropriate for you based on your personal circumstances. You may lose more than you invest. We recommend that you seek independent advice and ensure you fully understand the risks involved before trading. The information on this website is not directed at residents of countries where its distribution, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.
IG is a trading name of IG US LLC (a company registered in Delaware under number 6570306). Business address, 1000 West Fulton Street, Chicago, IL 60607. IG is a registered RFED with the Commodities Futures Trading Commission and member of the National Futures Association (NFA ID 0509630).
IG US accounts are not available to residents of Ohio.