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Forex Trading
What is the foreign exchange market?
The foreign exchange market (Forex) is the largest financial market in the world,
with a daily average turnover of more than U.S. $2 trillion. Foreign exchange is
the simultaneous buying of one country’s currency and the selling of another.
Where is the Forex market located?
Unlike other financial markets, the Forex market has no physical location and no
central exchange. It operates through a global network of banks, corporations and
individuals trading one currency for another. The Forex market is considered an
over-the-counter (OTC) market, due to the fact that transactions are conducted between
two counterparts over the telephone or via an electronic network.
Who participates in the Forex market?
The Forex market is called an Interbank market due to the fact that historically
it has been dominated by banks, including commercial banks, and investment banks.
However, the percentage of other market participants is rapidly growing, and now
includes large multinational corporations, global money managers, international
money brokers, futures and options traders and others.
When is the Forex market open for trading?
A true 24-hour market that is open 5.5 days a week, Forex trading follows the sun
and moves around the globe as the business day begins in each financial center,
first to Tokyo, then London, and New York. Traders can respond quickly to currency
fluctuations caused by economic, social and political events at the time they occur
- day or night.
What are the most commonly traded currencies?
The most often traded currencies are those from countries with stable governments,
respected central banks, and low inflation. Today, over 85% of all daily transactions
involve trading of eight major currencies, which include the U.S. Dollar, the Japanese
Yen, the Euro, the British Pound, the Swiss Franc, the Canadian Dollar and the Australian
Dollar.
Do you need a lot of money to start trading currencies?
No. Some online Forex dealers offer mini accounts that enable you to trade small
contract sizes. These accounts can be funded with less than $1000.
What is margin?
Margin is essentially collateral for a position. If the market moves against a trader's
position, additional funds will be requested through a margin call. The concept
of risk. leverage and margin are examined in depth in the seminar.
What does it mean to have a long or short position?
A long position is one in which a trader buys a currency at one price and aims to
sell it later at a higher price. In this scenario, the investor benefits from a
rising market. A short position is one in which the trader sells a currency in anticipation
that it will depreciate. In this scenario, the investor benefits from a declining
market.
How can I get familiar with terms such as bid, ask, spread and others?
Refer to the extensive Glossary on our Web site,
which provides detailed definitions of all Forex related terms (and join us at a
seminar).
What is the difference between an intraday and overnight position?
Intraday positions are positions that are opened and closed anytime during the 24-hour
period AFTER the close of the trading day usually, but not always, at 5 p.m. Eastern
time (for U.S.-based dealers). Overnight positions are positions that are still
on at the end of the trading day, which are automatically rolled at competitive
rates (based on the currencies interest rate differentials) to the next day's price.
How are currency prices determined?
Currency prices (exchange rates) are affected by a variety of economic and political
conditions, most importantly interest rates, inflation and political stability.
Sometimes governments influence the value of their currencies, either by flooding
the market with their domestic currencies in an attempt to lower prices or buying
currency to raise prices. This is known as Central Bank intervention. Any of these
factors, as well as large market orders, can cause high volatility in currency prices.
However, the size and volume of the Forex market makes it impossible for any one
entity to drive the market for any length of time.
How do I manage risk when I trade currencies?
The most common risk management tools in Forex trading are limit orders and stop
loss orders. A limit order places restriction on the maximum price to be paid or
the minimum price to be received. A stop loss order ensures a particular position
is automatically liquidated at a predetermined price in order to limit potential
losses should the market move against an investor's position. The liquidity of the
Forex market makes limit orders and stop loss orders easy to execute.
How long are positions maintained?
As a general rule, a position is kept open until one of the following occurs: 1)
realization of sufficient profits from a position; 2) the specified stop-loss is
triggered; 3) another position that has a better potential appears and you need
the funds from an open trade.
I am interested in foreign exchange trading, but would like some additional
information. Any suggestions?
In order to gain a practical understanding of Forex trading, there is no better
way than to open a demo account where you can experience what
it's like to trade the Forex market without risking any capital.
What equipment do I need to start trading?
If you have a computer and an Internet connection, you're ready to start trading.
However, before applying real dollars, we recommend that you open
a demo account to practice and refine your skills. Analytical software,
newsletters and periodicals are also available to further your Forex education.
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