What
is Foreign Exchange / Forex /
FX?
Foreign
exchange is the simultaneous purchase of one currency and
sale of another currencies are
always traded in pairs. International
currencies are traded on floating
exchange rates. There is a daily
average turnover of about US$1.5
trillion in the foreign exchange
markets. The foreign exchange
market is known as the "Forex,"
or "FX" market. It is
the largest financial market in
the world.
Is
there a central location for the
Forex Market?
Forex
trading is not managed through
an exchange. Since transactions
are conducted between two counterparts,
the FX market is an inter-bank,
or over the counter (OTC) market.
Who
participates in the FX market?
Central,
commercial and investment banks
have traditionally dominated the
Forex market. Other market participation
is rapidly increasing, and now
includes international money managers
and brokers, multinational corporations,
registered dealers, options and
futures traders, and private investors.
When
is the FX market open for trading?
Forex
is a true global 24-hour marketplace.
The trading day begins in Sydney,
and moves around the globe as
each financial center comes to
life. Tokyo follows, then London,
and finally New York. Investors
can respond in real time to any
fluctuations caused by current
economic, social and political
events.
What
are the most common currencies
in the Forex markets?
The
most liquid currencies in the
Forex market are those of countries
with low inflation, stable governments,
and respected central banks. Nearly
85% of daily transactions involve
the major currencies, including
the U.S. Dollar, Japanese Yen,
the European Union Euro, British
Pound, Swiss Franc, and the Canadian
and Australian Dollars.
Is
is capital intensive to trade
forex?
Forex
Capital Management requires a
minimum deposit of $300 to open
a Mini Account and $2000 for a
regular account. Your relationship
with Forex Capital Management
enables you to conduct highly
leveraged trades (as much as a
200 to 1 leverage ration in the
Mini Account.) You set the degree
of leverage that you wish to deploy.
Unless otherwise specified, your
leverage level is set at the most
lenient level required by your
account size. Please remember
that while this degree of leverage
enables you to maximize your profit
potential, there is an equally
great potential for loss.
What
is Margin?
Margin
is a performance bond that insures
against trading losses. Margin
requirements in the FX marketplace
allow you to hold positions much
larger than the asset value of
your account. Trading with Forex
Capital Management includes a
pre-trade check for margin availability,
the trade is executed only if
there are sufficient margin funds
in your account. The Forex Capital
Management trading system calculates
cash on hand necessary to cover
current positions, and provides
this information to you in real
time. If funds in your account
fall below margin requirements,
the system will close all open
positions. This prevents your
account from falling below your
available equity, which is a key
protection in this volatile, fast
moving marketplace.
What
are short and long positions?
Short
positions are taken when a trader
sells currency in anticipation
of a downturn in price. Making
this move allows the investor
to benefit from a decline. Long
positions are taken when a trader
buys a currency at a low price
in anticipation of selling it
later for more. Making these moves
allows the investor to benefit
from changing market prices. Remember!
Since currencies are traded in
pairs, every forex position inevitably
requires the investor to go short
in one currency and long in 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 Forex Capital
s normal trading hours at 5:00pm
EST. Overnight positions are positions
that are still on at the end of
normal trading hours (5:00pm EST),
which are automatically rolled
by Forex Capital Management.
How
is pricing determined for certain
currencies?
The
full range of economic and political
conditions impact currency pricing.
It is generally held that interest
rates, inflation rates and political
stability are top among important
factors. At times, governments
participate in the forex market
in order to influence the traded
value of their currencies. These
and other market factors such
as very large orders can cause
extreme relative volatility in
currency prices. The sheer size
of the forex market prevents any
single factor from dominating
the market for any length of time.
How
can I manage risk?
The
most common risk management tools
in Forex trading are the stop-loss
order and the limit order. The
stop-loss order directs that a
position be automatically liquidated
at a certain price in order to
guard against dramatic changes
against the position. A limit
order sets the maximum price that
the investor is willing to pay
in a transaction, as well as a
minimum price to be received in
exchange. The foreign exchange
marketplace is so liquid that
it is easy to execute stop-loss
and limit orders. Forex Capital
Management guarantees execution
of stop-loss and limit orders
at the specified price on orders
up to US$1 million.
What
trading strategy should I use?
Both
economic fundamentals and technical
factors influence the decisions
of currency traders. Those who
follow economic fundamentals use
government issued reports, current
news, and broad economic trends
to anticipate movements in price.
Technical traders rely on trend
lines, support and resistance
levels, and a variety of charts
and mathematical analysis to identify
trading opportunities. Over time,
the most significant price movements
occur in close association with
unexpected events. Perhaps the
central bank changes rates without
warning, or an election puts an
unexpected candidate in power.
News from conflicts certainly
impacts currency pricing. More
often than not, it is the expectation
of a certain event rather than
the actual event that drives price
pressures.
How
often can trades be made?
As
one might expect, trading activity
on any particular day is dictated
by current market conditions.
Some small to medium size traders
might make as many as 10 transactions
in a day. By not charging commission
and offering tight spreads, Forex
Capital Management investors can
take positions as often as is
necessary without concern for
excessive transaction costs.
How
long should a position be maintained?
Forex
traders generally hold positions
until one of three criteria is
met:
- A
sufficient profit has been realized
from the position.
- A
pre-set stop-loss order is triggered.
- A
better potential position emerges
and the trader needs to liquidate
funds to take advantage of it.
How
do margin calls work?
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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