The foreign currency exchange market is the biggest market in the world, with a trading-volume average of more than $5 trillion a day. It is also an incredibly volatile market, with changes happening within a matter of seconds. Since it is such a dynamic market, currency traders are usually very active, sometimes opening and closing trades within minutes. Movement in currency is measured in very small units, known as “pips” (0.0001), and require substantial capital to generate noticeable profits. For this reason, most trading platforms offer leveraged transactions at a fixed ratio. For example, if the ratio is set to 1:100, then for each $1 invested, the platform loans the trader an additional $99. Leveraging is considered a double-edged sword, since losses are also leveraged, and can result in funds depleting rapidly. Each currency is affected by various factors, including central banks’ interest rate decisions, a certain country’s export statistics, and other economic events.
Currencies are traded on eToro only as CFDs, meaning you don’t need to purchase the underlying asset to trade them. In addition, CFDs enable “sell” (short) positions and leveraged trades – even for assets that don’t offer the option in traditional trading.