WHAT IS FOREX?

Forex trading, also known as foreign exchange or FX trading, is the conversion of one currency into another. FX is one of the most actively traded markets in the world, with individuals, companies and banks carrying out around $6.6 trillion worth of forex transactions every single day.

WHAT IS A CFD?

A contract for differences (CFD) is a contract between a buyer and a seller that stipulates that the buyer must pay the seller the difference between the current value of an asset and its value at contract time.

CFDs allow traders and investors an opportunity to profit from price movement without owning the underlying assets. The value of a CFD does not consider the asset’s underlying value, only the price change between the trade entry and exit.

WHAT IS A BROKER?

Most of the financial products you invest in are traded on a financial market. Since most exchanges only trade with licensed professional entities, you will need a broker to send orders on your behalf. Now comes the question: How do I know which broker is right for me?

The role of a broker

Let's say you want to buy your first stock. Then this order will usually go through a stock exchange. But how exactly does a market work and how do you, as an individual investor, get access to it?

The stock exchange

A stock exchange is a place where buyers and sellers meet to exchange financial instruments, such as stocks and bonds. There are many stock exchanges around the world. Famous examples are the London Stock Exchange in the UK, Euronext Amsterdam in the Netherlands, and perhaps the most famous of all, the New York Stock Exchange in the United States. Many exchanges have specialised segments, based on location, company size or sector. The NASDAQ exchange, for example, contains mainly technology stocks.

Trading used to be done on the trading floor by people who were present in the building at the time of the market. And while many people still have the image of a stock exchange full of shouting people and a multitude of computers displaying numbers, the scene today is much quieter. These days, you're more likely to find a lot of computers on the trading floor.

The stockbroker

For retail investors, it is easier than ever to access the world's markets from the comfort of their own home. They do so with the help of a broker, as the markets only deal directly with licensed professional entities. This is where a broker comes in, acting as an intermediary. If you open an account with Capital Place Limited, you get access to a trading platform that connects you to more than 50 markets worldwide.

The main function of a broker is to send orders to the market on your behalf. Capital Place Limited does this using an internally developed infrastructure and trading platform. With this, you can view markets from all over the world and use different analysis tools to make your investment decisions. You can also view an overview of news reports and price charts. The platform is available on your computer or mobile device, so you can access your account anytime, anywhere.

Commissions

Nowadays, most brokers are similar in terms of the services provided. However, the fees you pay for investing are still very different. And as these fees have a substantial impact on profitability, it is important to carefully weigh your options when choosing a broker. Capital Place Limited currently operates in 16 European countries and can therefore offer incredibly competitive rates. On our fees page, you will find a full breakdown of fees and see how it compares to other brokers.

WHAT KIND OF INVESTOR ARE YOU?

There are a multitude of things to consider when you start investing. A good starting point is to think about the type of investor you want to be. What is your investment style? Are you an active or passive investor?

Investing or saving

Maybe you've only had a savings account until now. But savings and investments can complement each other well. When you look at the average market performance over a long enough period of time, it becomes clear that it has had a higher growth rate than the savings account. This could be one of the reasons why investment accounts have become more popular.

Considerations

Before you start investing, there are a number of factors to consider. It's helpful to think about the level of risk you're willing to take and what types of products are best suited to meet your goals. For example, starting to invest when you are younger means you have a longer investment horizon. This is because of the extra time you have in case you need to recover from a falling stock market. In addition, you should be willing to take on a higher degree of risk in order to make more profit in a shorter period of time.

INVESTMENT STYLES

Because investors have different objectives and strategies, various investment styles can be recognised. These can be divided into two main categories: active investing and passive investing.

ACTIVE INVESTORS

Active investment is also known as trading or speculation. These investors will spend their time monitoring stock markets, responding to movements in the markets, and may use more complex financial instruments such as options and futures. Here, the focus is usually on the short term and with the aim of earning a higher return than the market average. It requires a lot of time and knowledge. Therefore, this investment style is generally not suitable for the novice investor.

PASSIVE INVESTORS

Passive investing, on the other hand, focuses more on investing over a longer period of time. Those following a passive style will buy less volatile and more diversified products to spread risk across investments. In this way, losses from individually volatile stocks can be offset by gains from others. Research is needed less frequently and the market does not need to be continually reviewed. To help you with this, there are financial instruments such as trackers to buy a basket of shares with a single purchase or position. By spreading your investments in this way, returns will be more in line with the market average. This method of investing has become increasingly easy and, for this reason, is popular with novice investors.

FREQUENTLY ASKED QUESTIONS

1. What makes Capital Place Limited unique in the trading market?

Answer: in Capital Place Limited, we combine the latest trading technology with a personalised approach for each client. Our platform is accessible and easy to use, offering advanced tools for experienced investors and beginners alike. We are committed to providing transparency, security and ongoing education for our clients to make informed decisions.

2. Do I need previous experience to start investing with Capital Place Limited?

Answer: No, in Capital Place Limited we believe that trading should be accessible to everyone. We offer a wide range of educational resources and personalised support to guide our clients, regardless of their level of experience. Our intuitive platform makes it easy to take the first steps into the world of trading.

3. How does Capital Place Limited protect my information and investments?

Answer: The security of our clients is our priority. We use advanced encryption technology to protect our users' personal information and funds. In addition, we keep client funds in segregated accounts, ensuring that they are protected against any financial adversity from the company.

TRADING GLOSSARY

24-hour market

The Forex market is open 24 hours a day, 5 days a week. Trading begins when the major global financial centres around the world open. The market opens in New Zealand on Sunday evening and ends after the market closes in New York on Friday. The greatest liquidity occurs when several time zones overlap.

Transparency

In some exchange-based markets, large players have been known to move stocks or commodities to gain an unfair advantage. Given the deep liquidity in the foreign exchange market, it is almost impossible to interfere with general market forces. This creates a fairer and more transparent market for all participants.

Trades in both bull and bear markets

There are no restrictions in the Forex market as to the direction in which you can trade. This means that if you think a currency pair is going to rise in value, you can buy it or 'go long'. If you think the pair is going to go down in value, you could sell it or 'go short'.

Accessibility

The amount required to trade Forex is generally lower than what would be required to trade other financial markets. In addition, multiple mobile and desktop trading platforms make it easy to access the Forex markets at any time.

Leverage

Forex can be traded on leverage. Leverage means that a smaller initial outlay is required to open a larger position. For example, if you have $1,000 in your trading account and use leverage of 1:100, you could open a position worth $100,000 (100 times the amount in your account). However, it is important to note that although leverage gives traders the ability to open larger positions to maximise potential profits, the potential for loss is equally large.

Volatility

Due to the huge daily volumes in the Forex market, there is always volatility. More volatility means more access to trading opportunities. You will have the ability to choose currency pairs that suit your trading style. For example, AUD/NZD is a great currency to start trading as a beginner due to its smaller daily range and low spreads, while EUR/USD would be more suitable for an advanced trader due to its large daily range and the speed at which it moves.

Liquidity

One of the main benefits of the Forex market is its superior liquidity. The foreign exchange market is the most liquid market in the world, this is one of the main differentiating factors between the Forex market and other financial markets. The foreign exchange market delivers over $5 trillion per day and this high liquidity means that your assets can be quickly converted into cash without any price discount, making it easy to convert a large sum of money into a foreign currency with little impact on the price.

Disadvantages

You should always consider your risk appetite and investment strategy before trading leveraged products. Leverage can work for you as well as against you and can increase gains as well as losses. In the event of a major move against you, you can lose more than your initial deposit. You can find more information about the benefits and risks in our Product Disclosure Statement.

Low trading costs

The cost per Forex transaction is less than one tenth of the average cost of a stock transaction. This represents a huge saving. It also means that a smaller investment amount is needed to start trading Forex.

Non-standard contract sizes

Forex is an over-the-counter market unlike the stock and futures markets. This means that Forex traders have flexibility in position size and can trade any amount between 0.01 lots (1 micro lot) and 200 lots. This gives traders a greater ability to manage their risk.