The international broker OctaFX presents a brief overview of the Forex industry’s nature by answering some of the most common concerns and explaining the function of CFDs (contracts for difference) within its financial service domain.
Education and clarification are in high demand when attempting to counter confusion. Especially when talking about a very complex topic—such as Forex, where many questions seem to arise from the general public. So let’s start with the most pressing one.
What is Forex?
In a sense, Forex is a dynamic basket of foreign currencies and exchanges. The full term reads as ‘Foreign exchange’ and contains the process of changing one currency into another. The Foreign Exchange market is decentralised by nature. It lives wholly online and uses a great variety of different countries, currencies, and commodities.
The Forex sphere—who is it composed of?
The main actors of the Forex industry are far and foremost the broker itself, who provide the trading services, and its clients, who use them and are regular people. Also, Forex services rely on the essential relationship with liquidity providers. They function as mediators who are highly required to give traders access to the Forex market, offering the most accurate value estimation for the traded currencies.
There are global and local Forex brokers—the bigger the reach and regulatory scope, the bigger the Forex broker.
What is it with the license issue?
Global Forex brokers operate in a multitude of countries. They are often allowed to perform globally through multiple international documents. Just as OctaFX is an international business company, it’s equipped with the required set of incorporation documents, allowing it to offer global financial services to clients worldwide.
An essential advantage of working as a globally recognised Forex broker is the trading conditions they wish to offer and secure for their clients. Global Forex brokers have a wider variety of instruments on offer with fair and competitive trading and investing conditions that otherwise would simply lack on the Foreign Exchange market. Therefore, opportunities arise that wouldn’t be attainable under other circumstances.
As discussed above, decentralisation for the Forex market is vital. It operates—without exception—online and utilises a wide variety of different regions and even continents, national currencies, and commodities. Even local brokers must use some features and advantages of international partners, such as payment systems and other services. So, it sounds like it can’t be limited to one particular country entirely.
What’s the deal with CFDs within Forex?
CFDs are financial products that Forex and CFD brokers offer in their services. CFD stands for a ‘contract for difference’, which is basically a contract between a broker and its client to pay out the difference that occurs when an asset’s price changes.
Investors and traders who make use of these do not actually own the underlying asset themselves. However, what is at stake is the difference in price an asset may experience during the utilisation of a given CFD. This price difference is a matter of contractual agreement between broker and client. The moment of the contract’s expiry is crucial: the price difference at that point decides over the revenue being paid out to the investor by their broker. It is the investor who, upon entering a CFD, needs to determine if the asset will increase or decrease at the moment of the CFD’s closure—loss and profit depend on the outcome of this business decision. The more one employs technical analysis and closely follows market trends, the more one can shift the results in their favour.
Therefore, engaging in CFDs is considered an advanced trading strategy in the financial industry—for mature and accomplished investors.
So, Forex is not gambling?
No. Gambling is when one is always uncertain of their chances of winning. Also, unless gamblers use foul play, they continually believe the odds are stacked against them. Their chances of winning are consistently lower than those of the institution they gamble with. One can’t analyse or forecast the next combination of a slot machine or Blackjack card playing position.
However, Forex traders, especially the conscious ones, should come up with various trading strategies that will shift the odds in their favour. They can use different analysis tools to detect market trends and turn them in their favour, opening a position that is bound to be profitable for them.
Thus, being fully prepared for market behaviour, taking risk management seriously and accumulating relevant knowledge, they can be sure to develop a profitable overall position after some skilful trading patterns.
Once again, Foreign Exchange is decentralised but at the same time a globally regulated and deeply established financial market. Moreover, binary options are not Forex, and Forex is not binary options, let alone any kind of gambling as some on the internet are attempting to claim. There is a craft to learn and regular profit to be made, even recurring income. But as with any legitimate endeavours to thrive on the financial market, one has to be ready to train their skills through education and learning.