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What does the term “Forex” or “FX” stand for?
Forex or FX, are common abbreviations for the term “Foreign Exchange”.
What is foreign exchange and how is it traded?
The Foreign Exchange market, also referred to as the "Forex" or "FX" market, is the largest financial market in the world, with a daily average turnover of approximately US $1.5 trillion – 3.5trillion. Foreign Exchange is the simultaneous buying of one currency and selling of another. The world’s currencies are on a floating exchange rate and are always traded in pairs, for example Euro/Dollar or Dollar/Yen.
Who looks over or regulates the actions of the foreign exchange markets?
The "Commodity Futures Trading Commission" (CFTC) regulates the foreign exchange markets. They protect investors much in the same way the SEC (Securities Exchange Commission) protects investors of stocks and bonds. This federal regulatory agency was established in 1974and administers the Commodity Exchange Act (The federal act that provides for federal regulation of futures trading.) The CFTC monitors the futures and options on futures markets in the United States.
Why do people trade foreign currencies?
There are two reasons to buy and sell currencies. About 5% of daily volume is from companies and governments that buy or sell products and services in a foreign country and/or must convert profits made in foreign currencies into their own domestic currency. The other 95% consist of investors trading for profit, or speculation.
Which foreign currencies area traded the most?
The most commonly traded (and therefore most liquid) currencies are often referred to as "the Majors." More than 85% of all daily transactions involve trading of the Majors, which include the:
- US Dollar
- Japanese Yen
- Euro
- British Pound (Sterling)
- Swiss Franc
- Canadian Dollar
- Australian Dollar
What is a pip?
A. The smallest increment that a particular currency pair can move. The EUROUSD currency cross has a PIP value of $10. A move of 10 PIPS = $100
Where is the central location of the Forex Market?
Forex Trading is not centralized on an exchange, as with the stock and futures markets. The Forex market is considered an Over the Counter (OTC) or 'Interbank' market, due to the fact that transactions are conducted between two counterparts over the telephone or via an electronic network.
Who are the participants 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 central banks, commercial banks, and investment banks. The number of other market participants is growing rapidly. It now includes specialist forex dealers, money managers and brokers, futures & options traders, private speculators and multinational corporations.
When is the Forex market open for trading?
A true 24-hour market, Forex trading begins each day in Sydney, and moves around the globe as the business day begins in each financial center, first to Tokyo, then London, and New York. Unlike any other financial market, investors can respond to currency fluctuations caused by economic, social and political events at the time they occur - day or night.
What are forex trading hours?
Forex traders market are available 24 hours daily from 5:00pm EST Sundays through 4:30pm EST on Fridays, including most U.S. Holidays.
Do you need a lot of money to trade currencies?
No. The minimum deposit required is $300 on a mini account. A standard account can be opened for $2500.00. Customers are allowed to execute margin trades at 10:1 leverage on a mini and 100:1 on a standard account. This means that investors can execute trades up to $100,000 with an initial margin requirement of $1000 ($10,000 for $100 on a mini). However, it is important to remember that while this type of leverage allows investors to maximize their profit potential, the potential for loss is equally great.
What is Margin?
Margin is essentially collateral for a position. If the market moves against a customer's position, additional funds will be requested through a "margin call." If there are insufficient available funds, immediately the customer's open positions will be closed out. It is important to note that when a trader makes a trade the Market Maker (Forex broker) segregates $1000 of margin for each lot traded ($100 on a mini account). This is NOT your risk. Your actual risk on the trade is the amount the Forex Broker charges to enter the trade (typically 3-10 pips depending on currency cross) and the amount of your stop loss.
What does it mean 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. However, it is important to remember that every Forex position requires an investor to go long in one currency and short the other.
What is the difference between an intraday and overnight position?
Intraday positions are all positions opened anytime during the 24 hour period AFTER the close of normal trading hours at 4:30pm EST. Overnight positions are positions that are still on at the end of normal trading hours (4:30pm EST), which are automatically rolled at competitive rates (based on the currencies interest rate differentials) to the next day's price.
How much does the currency market move?
A typical day is 60-90 PIPS movement per currency. A Forex trading day will produce a 120-300 PIP movement. A small trader's goal is to find an entry point that will produce a profit that will pay the Forex Broker his spread and make at least the same amount for yourself. If your goals were to make $100 a day for the rest of your life, you need only 10 PIPS of the above total to accomplish that goal.
What affects the prices of currencies?
Currency prices (exchange rates) are affected by a variety of economic and political conditions, most importantly interest rates, inflation and political stability. Moreover, governments sometimes participate in the Forex market to influence the value of their currencies, either by flooding the market with their domestic currency in an attempt to lower the price, or conversely buying in order to raise the price. 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 is risk managed when I trade currencies?
The most common risk management tools in Forex trading are the limit order and the stop loss order. 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 ensures that limit order and stop loss orders can be easily executed.
What kind of forex trading strategy should I use?
Currency traders make decisions using both technical factors and economic fundamentals. Technical traders use charts, trendlines, support and resistance levels, and numerous patterns and mathematical analyses to identify trading opportunities, whereas fundamentalists predict price movements by interpreting a wide variety of economic information, including news, government-issued indicators and reports, and even rumor. The most dramatic price movements however, occur when unexpected events happen. The event can range from a Central Bank raising domestic interest rates to the outcome of a political election or even an act of war.
What's the difference between a demo and live trading account?
The only difference is that there is no capital at risk when trading on the demo system. A demo station is fully functional and, more importantly, the bid/ask rates available in the demo system are the EXACT rates available to our live trading clients. The demo allows you to see firsthand the consistent Interbank dealing spreads offered by FOREX.com and sample the ability to deal instantly from live, streaming quotes.
How much money do I need to open an account?
The minimum deposit to open a mini account with FOREX.com is US$300 minimum transaction size for a mini account is US$10,000 (or the equivalent), with a minimum margin deposit of $300 (at 100:1 leverage).
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