FOREX FAQ

Frequently Asked Questions

	01. Some people call the FX market the market that never sleeps. What are the advantages and disadvantages of a 24-hour market? Forex provides frequent opportunities on both the upside and downside. For many years the Foreign Exchange market (FOREX or FX) was out of reach for the mainstream investor. But nowadays with low transaction costs and easy access to the Forex market, one can easily participate in the world’s largest trading arena. It has been said that "The FOREX Market never sleeps." Unlike the Stock Market, there is no waiting for an opening bell. This can be very advantageous if you want to trade on a part-time basis, as you can choose when you want to trade: morning, noon or night. Also, because the FX market is sensitive to Political, Financial and Economical news, a trader can take immediate advantage of this volatility and trade accordingly. The downside to a 24 hour market is that one can easily get obsessed with trading and find themselves "Over trading." return to top

	02. In Forex the terms "margin" and "leverage" play a major part. Could you explain the coherences in contrast to the stock market? The stock market generally does not allow leverage products, unless you are trading an exchange traded future. As FX is an OTC market, leverage can generally be greater, and margin requirements are more flexible depending on the product and entity. As an example of leverage, if a client is on margin of 5% he can trade to 20 times his initial deposit. Also, there are no commissions or exchange fees to pay in the FOREX market which is an advantage to the trader. And with narrow spreads in FX compared to equities this can be an additional saving to the trader. Slippage is another factor in the stock market. But here in the FX market, this is not something that the FX trader has to worry about under normal market conditions. return to top

	03. The volume in the Forex market is bigger than in any other market. To what does a private trader have to pay attention to? With a daily trading volume of over $2 trillion the FX market dwarfs the equities and futures markets combined. This can be good news for traders as one will find that a true trend is more sustainable in FOREX and as long as they focus on the Major support and Resistance levels on a chart, Technical Analysis can play a useful tool for effective trading. At the same time it is useful to keep an eye on Political and Economical Data releases as they really can impact the FX market in a big way. return to top

	04. As with all trading strategies, one must always apply stringent risk and money management rules. What kind of risks are waiting for a Forex-Trader and what are the special preparations you have to make for the FX market? Like all financial markets, one must have a full understanding of the risks involved in trading whether it is FOREX, Futures or Stocks. Because of the combined volatility and leverage offered in FX, traders should pay strict attention to risk control and never put themselves into a situation where they are over leveraged. As mentioned previously, News can have a swift impact on the FX market and therefore using Stop Loss Orders are essential. return to top

	05. Is it possible for a person who has a full-time job to trade in the Forex market? What are the conditions to trade successfully this way? Absolutely, the FOREX market is highly liquid and after spending some time studying the dynamics of this market, one can find unique opportunities which are not available in the other financial markets through most of the day. There are key times during the day where there is good volatility and as long as a trader is equipped with effective strategies and good risk control, these can present profitable trading opportunities. return to top

	06. Is there any basic advice for new entrants in the FX market? Be sensible, have a strong foundation with good education and respect risk rather than abuse it. FX is a very high risk product as are all margined products. The key to becoming successful in the FX market is to ensure one has a plan and a sensible attitude to risk and money management. And don't get over leveraged, as you could be out of the market very quickly. There is no Holy Grail in any of the markets. If a new trader can find a good Educational and Trading Programme and understand how the FOREX market works then this can only help them in the long term. return to top

	07. Is there a minimum size for a Forex-account? A suggested amount of capital to start with is $2,000 and of course the more available capital one has the more flexible one can be. Whatever amount you put in, make sure it is money you can, in the worse case scenario, afford to lose i.e. don’t trade with the money you set aside for your new car or house! return to top

	08. Are there recommended techniques or strategies that are commonly used in the Forex market? A trader would be in a better position to first have a look at a basket of trading styles and strategies. One can now buy a suitable and reasonably priced trading software package and back test ideas. The basic rule of thumb is to trade with the underlying trend. For higher risk traders, they may want to look at break out strategies or reversal strategies which professional traders employ around key news events. With the advent of computers and internet technology, today’s trader is in a far better and advantageous position than before to test and simulate ideas, before putting large amounts of capital at risk. The key point to remember is for a trader to find a suitable strategy to fit their risk temperament, as well as their lifestyle. return to top

	09. What are the key characteristics of the Foreign Exchange Market? The key highlights are: The FX market is a global industry that operates worldwide. The market itself is a network of traders that are connected by telephones and computers and consists of no centralised base or exchange. This is an OTC or 'over the counter' market. The most common type of FX trading transaction is called a 'spot' or 'cash' transaction where one currency is either bought or sold against another currency. Foreign exchange prices fluctuate constantly 24 hours a day, 6 days a week as the supply and demand shifts according to economic or political factors. The three major centres of foreign exchange trading are London, United States and Japan. London trades the largest volume due to its time zone and stringent regulation under the Financial Services Authority. return to top

	10. What are the key reasons to Trade Foreign Exchange? There are 3 key reasons: Speculation To make short term profits from fluctuations in exchange rates. Hedging To gain protection from losses due to changes in exchange rates. Physical Delivery To acquire the foreign exchange currency to purchase goods and services from other countries. return to top

	11. Who are the main participants in the Forex market? The main Forex Market Participants are: Interbank participants are the largest and most important. Corporations, global funds, FX market makers, hedge funds. Individual traders & investors. return to top

	12. What are the advantages of trading forex? Highly liquid markets. Leverage available (remember this affects losses as well as profits). Full transparency with 100% electronic execution. Low transaction costs. Trending markets. The largest and most liquid market in the world – currently worth $2 trillion daily. Multiple liquidity providers. Institutional pricing at retail level. 24 hour trading. Ease of trading - enter and exit markets anytime. Transparent, competitive two-way prices. No commissions or other dealing charges (AxisODL make their money on the spread). Multiple trade sizes. No delivery or contract expiry. Many currency pairs to trade. There is never a bear market – you have the ability to profit in rising and falling markets. When it comes to trading and investing strategies, it could be argued that FX is the 'purest' market available: The Euro is not going to issue a profits warning, no director is going to sell a large holding of stock and any analysts' downgrade is going to have little or no impact on the FX market. return to top

	13. What are "The Majors"? USD – US Dollar. EUR – Euro. JPY – Japanese Yen. GBP – Great British Pound. CHF – Swiss Franc. CAD – Canadian Dollar. AUD – Australian Dollar. 85% of daily transactions involve the majors. return to top

	14. Which are the Most Liquid Currency Pairs? EURUSD – Euro/US Dollar – Euro Dollar. USDJPY – US Dollar/Japanese Yen – Dollar Yen. USDCHF – US Dollar/Swiss Franc – Dollar Swiss. GBPUSD – Sterling/US Dollar – 'Cable'. EURJPY – Euro/Japanese Yen – Euro Yen. EURGBP – Euro/Sterling – Euro Sterling. return to top

	15. How long on average does an "FX trade" last? 80% of FX transactions are open for less than 7 days with 40% open for less than 2 days. return to top

	16. How does the Trading Day progress around the world? Begins in New Zealand and Australia. Tokyo. Europe. London. Ends in New York. return to top