Why trade Forex?

Why trade Forex?

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24 hour trading
One of the major advantages of trading forex is the opportunity to trade 24 hours a

day from Sunday evening (20:00 GMT) to Friday evening (22:00 GMT). This gives you a unique

opportunity to react instantly to breaking news that is affecting the markets.
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Superior liquidity
The forex market is so liquid that there are always buyers and sellers to trade with.

The liquidity of this market, especially that of the major currencies, helps ensure price

stability and narrow spreads. The liquidity comes mainly from banks that provide liquidity

to investors, companies, institutions and other currency market players.
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No commissions
The fact that forex is often traded without commissions makes it very attractive as an

investment opportunity for investors who want to deal on a frequent basis.
Trading the “majors” is also cheaper than trading other cross because of the high

level of liquidity. For more information on the trading conditions of Saxo Bank, go to the

Account Summary on your SaxoTrader and open the section entitled "Trading Conditions" found

in the top right-hand corner of the Account Summary.
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100:1 Leverage
Leverage (gearing) enables you to hold a position worth up to 100 times more than your

margin deposit. For example, a USD 10,000 deposit can command positions of up to USD

1,000,000 through leverage. You can leverage the first USD 25,000 of your investment up to

100 times and additional collateral up to 50 times.
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Profit potential in falling markets
Since the market is constantly moving, there are always trading opportunities, whether

a currency is strengthening or weakening in relation to another currency. When you trade

currencies, they literally work against each other. If the EURUSD declines, for example, it

is because the U.S. dollar gets stronger against the Euro and vice versa. So, if you think

the EURUSD will decline (that is, that the Euro will weaken versus the dollar), you would

sell EUR now and then later you buy Euro back at a lower price and take your profits. The

opposite trading scenario would occur if the EURUSD appreciates.



Important Forex Trading Terms

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Spread
The spread is the difference between the price that you can sell currency at ( Bid)

and the price you can buy currency at ( Ask). The spread on majors is usually 3 pips under

normal market conditions. For more information on the trading conditions at Saxo Bank, go to

the Account Summary on your Client Station and open the section entitled "Trading

Conditions" found in the top right-hand corner of the Account Summary.
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Pips
A pip is the smallest unit by which a cross price quote changes. When trading forex

you will often hear that there is a 3-pip spread when you trade the majors. This spread is

revealed when you compare the bid and the ask price, for example EURUSD is quoted at a bid

price of 0.9875 and an ask price of 0.9878. The difference is USD 0.0003, which is equal to

3 “pips”.

On a contract or position, the value of a pip can easily be calculated. You know that

the EURUSD is quoted with four decimals, so all you have to do is cancel out the four zeros

on the amount you trade and you will have the va value of one pip. Thus, on a EURUSD 100,000

contract, one pip is USD 10. On a USDJPY 100,000 contract, one pip is equal to 1000 yen,

because USDJPY is quoted with only two decimals.



Trading Scenario – Trading Rising Prices
If you believe that the Euro will strengthen against the dollar you'll want to buy Euro now

and sell it back later at a higher price.

• You buy Euro We quote EURUSD at Bid 0.9875 and Ask 0.9878, which means that you

can sell 1 Euro for 0.9875 USD or buy 1 Euro for 0.9878 USD .

In this example you buy Euro 100,000, at the quote price of 0.9878 (ask price) per Euro.
• The market moves in your favor Later the market turns in favour of the Euro

and the EURUSD is now quoted at Bid 0.9894 and Ask 0.9896.
• Now you sell your Euro and get the profit You sell Euro at a Bid price of

0.9894.
• The profit is calculated as follows Sell price-buy price x size of trade
(0.9894 minus 0.9878) multiplied by 100.000 = USD 140 Profit
(Note that the profit or loss is always expressed in the secondary currency)


Trading Scenario – Trading Falling Prices
If, on the other hand, you believe that the Euro will weaken against the dollar, you'll want

to sell EURUSD .

• You sell Euro We quote EURUSD at a Bid price of 0.9875 and Ask price of

0.9880 and you decide to sell Euro 100,000 at a Bid price of 0.9875.
• The market moves in your favour The Euro weakens against the dollar and the

EURUSD is now quoted at bid 0.9744 and ask 0.9749.
• Now you buy back your Euro You buy EUR at an ask price of 0.9749.
• Your Profit/loss is then Sell price-buy price x size of trade
(0.9875 minus 0.9749) multiplied by 100.000 = USD 1260 Profit
Remember that trading EUR 100,000 as we have done in our examples, does not mean that you

have to put up Euro 100,000 yourself. On a 2% margin means that you have to deposit 2.0% of

Euro 100,000, which is Euro 2,000 on margin as a guarantee for the future performance of

your position.