Forex is the name for the global, decentralized market for the trading of currencies. It is the largest market in the world, with a daily trading volume of $6.6 trillion as of April 2019. Forex assists international trade by enabling currency conversion. Forex works as a market where currencies are traded; because of the nature of the transaction, there is no set absolute value for a single currency, with the relative value being determined by the market price of currency exchanged with another. It means that if you believe that the USD is going to increase value against the JPY, you’d trade in the USD/JPY pair: if the United States dollar rises, you’d profit; if it drops, you’d incur a loss. Conversely, you’d place a trade against the United States dollar if you believe it will decrease in value, thus gaining from the price drop.
The commodity market trades in the primary economic sector, which refers to all extracted and/or collected natural resources. Commodities can be divided into two: hard commodities, like gold, natural gas or oil, and soft commodities such as cocoa, sugar, wheat, and corn. Hard commodities must be mined or extracted, while soft commodities are products of farming or livestock. The commodity market consists of both physical and virtual marketplaces for buying, with investors accessing about 50 major worldwide markets to financially trade commodities. Purely financial transactions greatly outnumber physical trading of goods nowadays. Commodities are traded using spot prices, forwards, futures, and options on futures. For centuries, a simple form of the commodity market was used by farmers to manage the price risk of their products and goods. As of 2019, oil and gold are the most traded commodities.
Indices are the normalized average of a price relative to a class of goods or services: as a statistic, it is designed to help compare the price relatives, and it allows to have a big picture of the geographical and chronological evolution of the price of the determined good. Indices are traded just like commodities, with profits made from buying or selling indices at a lower or higher price. The overall value of each individual index is calculated relevant to each share, therefore, the rise or fall of indices rests on the performance of its stocks.
CFDs is the acronym that stands for Contract for Difference, and it is a type of trade that involves specifically two parties, typically described as a ‘buyer’ and a ‘seller’, which agree that the seller will pay to the buyer the difference between the current value of an asset and its value at the specified contract times between the parties; if such difference is negative, it will be the buyer that instead pays the seller. When stocks are traded, what is at stake is the position of the buyer and seller regarding the prediction whether the stock will rise or fall between the original time and the time agreed in the contract. CFD has the advantage of enabling traders to profit both from rising markets and falling markets, moreover, since the asset is not owned directly by the parties, it cuts dealing costs and only the movement of the underlying price becomes the matter of the trade. The only way to suffer a loss in CFDs trade is if the markets move in a direction the trader did not expect.