What is forex?
Forex (Foreign Exchange) is the abbreviation for “direct access” foreign currency trading. With an average daily volume of $1.4 trillion, FX is 46 times the size of all futures markets combined and is therefore the most liquid market in the world. Historically, FX trading was mainly reserved for massive money center banks and other institutional investors. However, in the last few years, technical advancements and the introduction of online trading platforms have enabled tiny traders to reap the substantial advantages of forex trading.
If you’re a trader now, or would like to become one, trading foreign currencies has significant advantages over other types of trading.
For one thing, getting started is surprisingly simple. This is your job. Open a demo account with $50,000 in “virtual money” right now and begin experimenting. You begin trading immediately, with zero risk, with live quotes, access to research, news and charts, and the same real-time profits and losses you would have if you were trading for real.
It’s just like learning to ride a bike. The best thing to do is just start doing it. Eventually, you take the training wheels off and you ride for real. With forex, that means putting money into a live trading account, and trading for real. Or you can walk through a trade right now and see how forex trading works within minutes.
Forex offers a number of advantages over other types of trading, including:
- Powerful leverage
The leverage in forex is greater than in most other trading vehicles. For a deposit of just $1,000, an investor can typically control $100,000 worth of a foreign currency.
- Zero commissions
You pay no commissions or exchange fees since you access the market directly via electronic internet trading.
- Limited risk
Your risk is strictly limited. You can never lose more than your account balance. This implies that a negative equity balance is never possible. You can also define and limit your risk with stop-loss orders, which are guaranteed by stocks on all orders up to $1 million in size.
- Guaranteed prices and Instantaneous Fills
You get instantaneous execution and total price certainty on all orders up to $1 million in size. This allows you to trade with confidence off real-time, two-way quotes. Additionally, this price guarantee is applicable to stop-loss and limit orders.
- 24-hour market
Forex is a 24-hour market that follows the sun around the globe, from the United States to Australia and New Zealand, Hong Kong, the Far East, and Europe, and finally back to the United States. The huge number and diversity of investors involved make it difficult even for governments to control the direction of the market. Forex is the perfect market to trade due to its unparalleled liquidity and constant worldwide activity.
Trading forex is remarkably easy. Everything you need to trade can be found right here (Open up a live trading account right now… or a FREE demo account with $50,000 worth of virtual money.)
Currency pairings are constantly valued and exchanged in the forex market. You simultaneously purchase one currency and sell another, but you choose which currency pair to exchange. For instance, if you think the Eurodollar’s value would rise in relation to the US Dollar, you would purchase the Euro in the Euro/US Dollar pair. The purpose of forex currency trading is to exchange one currency for another in the hope that the market rate or price will move in your favor, increasing the value of the currency you purchased compared to the currency you sold. If you purchase a currency and the price appreciates, you must sell it back to lock in the profit. An open trade or position is one in which a trader has purchased or sold a currency pair but has not sold or bought back the equal amount to properly close the transaction.
The pair’s initial currency is referred to as the base currency, while the second currency is referred to as the counter or quote currency. As the world’s leading currency, the US dollar is often used as the base currency for quotations, which include USD/JPY, USD/CHF, and USD/CAD. This implies that quotations are represented in terms of one dollar against the other currency in the pair. The Euro, British Pound, and Australian Dollar are the outliers. The exchange rate for these currencies is expressed in dollars per foreign currency.
As with most traded financial products, forex quotes include a “bid” and “ask.” The ask is the price at which a market maker will sell (and you can buy) the base currency in exchange for the counter currency. The bid is the price at which a market maker is willing to buy (and you can sell) the base currency in exchange for the counter currency. The spread is the difference between the bid and ask prices. You get tight spreads reflected in our firm prices quoted to buy or sell each currency pair.
Forex margin is not a down payment on an acquisition. Rather than that, the margin is a performance bond or good faith deposit used to protect traders from trading losses. The margin requirement enables you to maintain positions much bigger than the value of your real account. Online trading platform has margin-management capabilities that allows you to get up to 200:1 leverage. The trading platform automatically checks for margin availability before to executing a transaction and will only execute it if you have adequate margin money in your account. Additionally, the system calculates the money required for open jobs and shows this information in real time.
Trades must be paid within two business days in the spot FX market. For instance, if you sell 100,000 Euros on Tuesday, you must deliver 100,000 Euros on Thursday, unless you roll over the contract. As a service to you, stock automatically rolls over all open positions — that is, exchanges the trade forward to the next settlement date (two business days) at 5 p.m. ET. The swap rates are determined at the Interbank level and are tradable instruments. Any time a spot rollover transaction occurs, the interest rate differential between the two currencies is reflected in the overnight “loan.” If the trader has a long position If you hold the currency with the higher interest rate in the pair, you should benefit from on-the-spot rollover due to the currency’s premium connection to the short currency. The gain is determined by the interest rate difference between the two currencies, which varies daily in response to price movements. For example, the rollover is typically $2 per lot for USD/JPY and $15 per lot for GBP/JPY on any given day. Rollover has little effect on day traders who never hold a position overnight.