What is Foreign Exchange?

The Foreign Exchange market, also referred to as the "Forex" market, is the largest financial market in the world, with a daily average turnover of approximately US$ 2.3 trillion. 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.

How Forex trading works?

Forex is often traded in pairs, for example EUR/USD, USD/JPY, EUR/JPY, GBP/CHF, and CAD/USD. You get 'short' in one currency and you will get 'long' in the other one. Unlike conventional stocks market, Forex trading does not have a centralized trade market.

It is considered as Over-the-Counter or Inter-bank as trades are done between two counterparts via electronic network or telephone connections. Forex works truly as a 24-hour market.

Everyday Forex trade begins when the financial centers in Sydney start their day, and moves around the globe to Tokyo, London, and then New York. Traders can always response to the market regardless of the local time.

Where is the central location of the FX Market?

What is Margin?

Margin is a cash deposit provided by clients as collateral to cover losses (if any) that may result from the clients trades. The Margin required from clients start from 1% for trading. For example, with $1,000 margin you can open a position of $ 100,000 margined at 1%, against another currency.

What are the major traded currencies?

Major traded currencies are United States dollars, Australian Dollars, Japanese Yens, British Pounds, Swiss Francs, Canadian Dollars, and the Euro Dollars.

What is the best Forex trading strategy?

There is none. You should constantly develop your own strategies for every possible market situation, if you want to be in profit. Specific strategies can only be good for a certain period of time and for certain currency pairs.

What does it mean have a 'long' or 'short' position?

In trading parlance, 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 FX position requires an investor to go long in one currency and short the other.

When is the FX market open for trading?

How do I manage risk?

The most common risk management tools in FX 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.

How often are trades made?

Market conditions dictate trading activity on any given day. As a reference, the average small to medium trader might trade as often as 10 times a day. Most importantly, because most Forex Brokers don't charge commission, traders can take positions as often as necessary without worrying about excessive transaction costs.

What is Roll-over/SWAP rates?

Roll-over aka SWAP rates is the process where by the settlement of a deal is rolled forward to another value date. The cost of this process is based on the interest rate differential of the two currencies. You can earn interest as well as pay interest.