| What is Foreign Exchange? |
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| 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$1.9 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. |
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| How fair is the Forex market? |
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| It is said to be the "fairest market on earth? because it is so large and there
are so many participants that no one player, not even a large government, can
completely control the direction of the market. |
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| Where is the central location of the Forex Market? |
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| 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. |
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| Who are the participants in the Forex Market? |
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| 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. However, the percentage of other
market participants is rapidly growing, and now includes large multinational
corporations, global money managers, registered dealers, international
money brokers, futures and options traders, and private speculators. |
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| When is the Forex market open for trading? |
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| 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. |
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| What are the most commonly traded currencies in the Forex markets? |
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| The most often traded or 'liquid' currencies are those of countries with stable
governments, respected central banks, and low inflation. Today, over 85% of
all daily transactions involve trading of the major currencies, which include
the US Dollar, Japanese Yen, Euro, British Pound, Swiss Franc, Canadian
Dollar and the Australian Dollar. |
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| What is Margin? |
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| 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. |
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| What does it mean have a 'long' or 'short' position? |
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| 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. |
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| What is the difference between an "intraday" and "overnight" position? |
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| 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.
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| How do margin calls work? |
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| A margin call is generated when the equity balance in an account drops
below the margin requirement for that size account. If the maximum allowable
leverage has been exceeded, any open positions are immediately liquidated,
regardless of the nature or size of the positions |
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| What affects the prices of currencies? |
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| 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 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. |
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| How do I manage risk when I trade currencies? |
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| 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 sets a
particular position to be 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.* |
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| What kind of trading strategy should I use? |
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| Currency traders make decisions using both technical factors and economic
fundamentals. Technical traders use charts, trend lines, 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. Nonetheless, more
often it is the expectation of an event that drives the market rather than the
event itself. |
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| How long are positions maintained? |
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| 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 these funds. |
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| How do margin calls work? |
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| A margin call is generated when the equity balance in an account drops
below the margin requirement for that size account. If the maximum allowable
leverage has been exceeded, any open positions are immediately liquidated,
regardless of the nature or size of the positions |
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| How much profit can actually be made? |
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| Naturally results can and do vary among individuals and no guarantees can
be made as to profitability. Some markets for instance the Japanese Yen
have been known to move 400 pips in one day. If you calculate that 1 pip is
equal to approximately $7.8 per lot and you entered the market favouring that
move, even if you only got in halfway through that move, you would have made
quite a substantial profit. But, and this is a big “but”- You need to be aware
that the risks of Forex trading can be substantial, that results do vary from
person to person, and that the knowledge and experience that each one has
is different." |
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| How much profit can actually be made? |
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| Naturally results can and do vary among individuals and no guarantees can
be made as to profitability. Some markets for instance the Japanese Yen
have been known to move 400 pips in one day. If you calculate that 1 pip is
equal to approximately $7.8 per lot and you entered the market favouring that
move, even if you only got in halfway through that move, you would have made
quite a substantial profit. But, and this is a big “but”- You need to be aware
that the risks of Forex trading can be substantial, that results do vary from
person to person, and that the knowledge and experience that each one has
is different." |
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| How much risk is involved? |
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| Since gearing/leverage can work against you as well as for you, the risk factor
is very high in currency trading. So, a person who does not have extra capital
that he or she can afford to lose should not trade in the currency markets.
However, please keep in mind that most income opportunities involve risk. In
fact, some are even riskier than trading currencies. We invite you to read the
disclosures posted on this web site that provide more details regarding the
risk factor in trading currencies on the fx trading platform. |
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| I am interested in forex trading, but would like some additional information. Any suggestions? |
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| In Forex Education section we describe the foreign exchange market in
some detail. In order to gain a practical understanding of foreign exchange
trading, there is no better way than to open a forex demo account, where you
can experience what it's like to trade the forex market without risking any
capital.** |
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| *Except in extraordinarily volatile market conditions. |
| **Simulated conditions may differ from real conditions, and traders should
not necessarily expect the same results from live trading. |
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