4x currency trading is the act of buying and selling currencies against each other in the hope of making a profit from the rise or fall of the exchange rates between these currencies.
4x currency trading is one of the fastest growing financial markets in the world. The daily volume of trades is in excess of four trillion dollars a day (thats $4,000,000,000,000) making the forex market the most liquid market in the world.
The bulk of 4x currency trading is done electronically via specialized software applications known as 4x currency trading platforms (or forex platforms for short). Access to these platforms requires an account with an online 4x currency trading broker. These brokers act as “go betweens” and transmit your orders to and from the forex markets.
4x currency trading is done on currency pairs. The main 4x currency pairs are:
GBP/USD (Great Britain Pound / United States Dollar)
EUR/USD (Euro / United States Dollar)
EUR/GBP (Euro / Great Britain Pound)
There are many other 4x currency trading pairs but the list above are the main ones. These currency pairs have the biggest liquidity and the largest daily traded volumes.
There are two ways to make profits on the 4x currency trading markets:
Sell a currency in the hope it will fall against another currency
Buy a currency in the hope it will rise against another currency
Let’s take a couple of quick examples here for illustration:
A trader on the 4x currency trading markets sells 100,000 EUR/USD at a rate of 1.45 (1 Euro buys $1.45). This means the trader has sold 100,000 Euro and bought $145,000 (100,000 multiplied by 1.45). The trader’s expectation is that the Euro will fall against the Dollar, so he will be able to close or “buy back” the Euro at a lower price and make a profit. In this scenario, the trader “owes” the 4x currency trading markets 100,000 Euro.
The trader makes the right play and the EUR/USD falls to 1.35 making his $145,000 now worth 107,407 Euro (145,000 divided by 1.35). The trader can pay back the money owed to the market and make a profit of Euro 7,407.
It’s important to note here that during 4x currency trading, no “physical” money changes hands. It’s all done by opening and closing trades. Traders open and close trades and the overall profit is calculated from the round trip.
Let’s look at the opposite buying trade now. A trader buys 100,000 EUR/USD at 1.45 with the expectation that the Euro will rise against the Dollar. The trader now owes the 4x currency trading markets $145,000. Again, the trader makes the right play and the Euro rises to 1.6 against the Dollar. To close his position, the trader needs to payback to the markets $145,000 which at the new rate of 1.6 is equivalent to 90,625 Euro. The trader has made a profit of 9,375 Euro.
Participants in 4x currency trading are numerous and range from private investors all the way upto Central Banks. The bulk of 4x currency trading is done on what is known as the Interbank Market. This, as the name implies, consists of 4x currency trading between banks.
Prices in 4x currency trading are quoted for the buying and selling of currency pairs. Let’s look at an example image, we can see 4 distinct pieces of information.
Pair – The particular currency pair
Bid – The price the market will buy the pair
Ask – The price the market will sell the pair
Spread – The difference between the Bid and Ask prices
Brokers offering 4x currency trading typically add their own profit to the spread they offer their clients. This is an important point because before a trade becomes profitable, the trader must first overcome the spread.
4x currency trading is known as a leveraged product. With leveraged products, investors only need to put up a small part of their overall investment. Trading with a 4x currency trading broker who offers 1:10 leverage for example, means an investor only needs to deposit $1,000 to open positions of upto $10,000.
There are various other leveraged products available to investors but 4x currency trading has the highest leverage of any of these products. It’s not unusual to find brokers offering leverage all the way upto 1:100 and in some cases even higher.
4x currency trading on leverage means profits from successful trades is multiplied. Flip side however is that losses on unsuccessful trades will also be multiplied. Leverage is a tool and should be treated with respect.