Frequently Asked Questions.
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. It was created in the 70's when international trade transitioned from fixed to floating exchange rates, and nowadays is considered to be the largest financial market in the world because of its tremendous turnover.. 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?
Unlike the stock and futures markets, forex trading is not centralized on 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. The reason that the forex market is referred to as an interbank market is due to the fact that historically it has been dominated by banks, including central banks, commercial banks, and investment banks. 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 24-hour market and trading begins each day in Sydney, and then moves around the globe as the business day begins in each financial center - first to Tokyo, then London, and finally 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 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 forex trading capital intensive?
Yes, 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. You set the degree of leverage that you wish to deploy. 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, or good faith deposit, to ensure 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. Most forex brokers' online trading platforms perform automatic pre-trade checks for margin availability, and will only execute the trade if you have sufficient margin funds in your account.
What are “short” and “long” positions?
Short positions are taken when a trader sells currency in anticipation of a downturn in price, and Long positions are taken when a trader buys a currency at a low price in anticipation of selling it later for more.
What is the difference between an "intraday" and "overnight position"?
Intraday positions are all positions opened and closed before 17:00 Eastern Time (the end of the international trading day). Overnight positions are positions that are held through 17:00 Eastern Time.
How is pricing determined for certain currencies?
Currency prices are affected by a variety of economic and political conditions, but probably the most important are interest rates, inflation and political stability. Sometimes governments actually 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.
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?
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 rumors. 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.
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:
1. A sufficient profit has been realized from the position.
2. A pre-set stop-loss order is triggered.
3. 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.
