MAJOR CURRENCIES, COMMODITIES AND INDICES

The Forex market is full of different holdings one can trade, and some of these possible investments aren't even currencies. There are numerous possible currency pairs, but only a few trade at a high enough volume to be considered major. You can trade Thai Baht, but it will probably never have nearly as much volume as British Pounds. Let's look at the most major assets on the FX market.

Major Currencies

The seven most widely traded currencies on the Forex market are:

• US dollar or USD
• Canadian dollar or CAD
• Swiss Franc or CHF
• Euro or EUR
• Japanese yen or JPY
• British pound or GBP
• Australian dollar or AUD

Top Commodities

Commodities, in this case, can refer to both commodity-heavy nations and actual commodities traded for currencies. Some of the most major commodity-related currency pairs are the USD/CAD, USD/AUD and USD/NZD. NZD stands for New Zealand dollar. Although the NZD isn't traded enough to stand among the top currencies, it is traded highly enough to be a serious player among countries with a lot of natural resources.

Some commodity futures that are traded against currencies are gold, silver and crude oil. Since these are the most vital resources for most of the world's economies, trading them effectively is a high priority. These can be paired with most of the heavily traded currencies, but they are most commonly paired against the US dollar.

Indices of Note

A Forex index is an indicator of how strong a currency is relative to other currencies. Since Forex trading is just matching one currency against another, it's traditionally hard to evaluate how strong a currency is against the rest of the market. Using an index, a currency is compared against a basket of other currencies.

The most major indices are based on the most widely traded currencies listed above, and they are primarily compared against each other. One major exception to this is the US dollar index, which is compared against the Euro, Yen, Pound Sterling, Canadian Dollar, Swedish Krona and Franc.

You have an immense number of different investment opportunities in the Forex and futures markets. In addition to trading currencies against one another, you can also trade commodities and even indices where one currency is compared against several others. These options allow you to trade in a multitude of different ways based on more complex strategies that more effectively take into account the larger global picture.

WHAT IS PIPS ?

The Basis of Everything

Forex Pips are the smallest units of possible change in a given currency pair. When a pair trades one pip differently, it might be .01 as in the case of a currency pair with Japanese yen as the second unit. It might also be a .0001 difference. The first of those two examples would mean that the change is a one percent difference, whereas the second example means the change is 1/10,000, or one percent of one percent. A pip is the smallest unit of movement.

How to Calculate pip Values

The formula for calculating a pip's value is the pip's decimal place times the amount of units you've bought. For example, if you've purchased 100,000 units of the EUR/USD pair, you've bought 100,000 Euros using US dollars to buy them. This currency pair is calculated at four digits after the decimal point, so each pip equals .0001. At 100,000, every pip is worth $10. If you purchased 100,000 units of EUR/USD at 1.4567 and the pair moved up to 1.4577, you've just gained 10 pips or $100.

A pip's value can be variable. In the case of the Japanese Yen, the USD/JPY pair is unique in that it only features 2 units after the decimal point. This is unique among the Forex market, and is more common among commodities like gold or corn. An example is if you buy the USD/JPY pair you are buying 100,000 units of USD or 100,000 USD with Japanese Yen. Each pip is worth 1,000 yen. If the rate goes from 71.32 to 71.42, you've made 10,000 yen profit which is then translated to US Dollars on our trading platform.

Using our formula, the second currency in the trading pair is the currency used to calculate the value.

How to Think of Pips

So, what are pips? in a nutshell, every pip is a unit of change, so you can think of pips as the drivers of your gains or losses. If you're holding a currency pair that changes by a few pips, you may have just made or lost several hundred dollars. Since this change can happen quickly, it's important to pay close attention to pips. Since the Forex market is all about equal exchanges, it can be challenging to think of this kind of trading. You have to get away from thinking in terms of your native currency.

A pip is the basic unit of one currency's value compared to a currency it's paired against. Often a pip is only one percent of one percent or 1/10,000 of a position's value. A single pip with leverage can make a significant difference in how much money you make when trading a currency pair.

WHAT IS MARGIN AND LEVERAGE?

The concepts of leverage and margin are widely used in most financial markets. Investors can use the idea of leverage to potentially increase their profits on any particular investment. In the Forex markets, the leverage on offer is among the highest available in the financial markets. Typically, in the forex markets, leverage levels are set by your broker and can vary from 1:1, 1:50, 1:100 and even higher.

To invest in forex trading, the first thing you need is a trading account with a broker. The initial amount that needs to be deposited into this trading account will depend on the margin percentage agreed between you and the broker.

Standard trading is done on 100,000 units of currency. For this level of trading, the margin requirement would typically be from 1 - 2%. On a 1% margin requirement, the investor would have to deposit $1,000 to trade positions of $100,000. Effectively, the investor is trading 100 times his or her original margin deposit. The leverage in this case is 1:100. One unit controls 100 units

Leverage of this magnitude is significantly higher than the 1:2 leverage usually provided on equity trading for example or the 1:15 on the futures market. These leverage levels are only possible due to the lower price fluctuations on the forex markets as opposed to the higher fluctuations on the equity markets.

Typically forex markets change less than 1% a day. If the forex markets fluctuated as much as the equity markets for example, forex brokers would not be in a position to offer such high leverage as this would expose them to higher than acceptable risk levels.

Using leverage allows for significant scope to maximize the returns on profitable trades. After all, applying leverage means you can be controlling currencies worth 100 or more times the value of your actual investment.

Leverage is a double-edged sword however. If the underlying currency in one of your trades moves against you, the leverage in the trade will magnify your losses.

If this happens and your margin drops below the required levels, Capital One Forex may initiate what is known as a "margin" call against you. In this scenario, we will either instruct you to deposit additional funds into your account or close out some or all of your positions to limit loss to both yourself and us.

Your trading style will greatly dictate your use of leverage and margin. A well thought out trading strategy, prudent use of trading stops and limits and effective money management can make for profitable application of leverage and ultimately, profitable trading.

At Capital One Forex, clients may select their required leverage from 1:1 all the way up to 1:300.

Clients looking to change their leverage levels can do so by submitting a request to: accounts@capitaloneforex.com

If you are looking to trade higher leverage - keep in mind: Leverage is a tool. Used properly it can allow for maximized profits. Used unwisely, leverage can turn around and bite.