Frequently Asked Questions

What is Forex?

Forex, which stands for Foreign Exchange, is a unique type of financial market. The main purpose of traders is to gain profit from buying and selling currencies. Each country has its own currency and the exchange rates of these different currencies are permanently changing due to demand and supply.

Why trade Forex?

Forex is different in many ways when compared to the other markets in the financial system. Unlike the rest, Forex is affected by a number of changing economic factors. The Forex market is greatly liquid and operates 24hr a day nearly 7 days a week. You can find an open market at anytime of the day regardless of your location on the planet. Above all, the market is accessible to everyone from individuals like you to corporative traders.

Where is the market located?

There is no specific location attributed to Forex, it is present whether you are in the US, UK, Japan or Australia. It does not have a central point of contact. The market is inter-connected by banks, hedge funds, professional traders and traders all around the world via the telecommunication network services.

Where can I trade the Forex?

You can trade wherever you want as long as you have a computer and an Internet connection. You can trade at home, while traveling, at work or even on your golf course if you have some spare time to squeeze in-between your swings.

When can I trade?

You may trade at whichever time best suits you. It is a 24hr market opening in Australia, Sydney at 5pm EST and closing in the US, New York at 5pm EST. You can catch a trade whether it is in the morning of the afternoon.

What is a margin account?

A margin account can be referred to as a saving account that you have with a broker. It is not a down payment but simply deposit that will cover against any currency-trading losses in the future. If the degree of leverage was 100:1 for you margin account, the broker’s system will automatically calculate funds needed and margin availability for you to take a position in the market.

How is currency traded?

Spot Forex is traded in lots. When you buy a currency pair, you are actually buying 1 lot of that currency. The standard size for a lot is $100,000.

Let’s say you buy US Dollar and sell JP Yen with quote of 97.38/97.41. This means that you are buying 1 lot of $100.000 at 97.41 (price at which traders are prepared to sell). The size of the lot you will be able to use will depend on your margin account. For example for every $1000 you can trade 1 lot.

How to calculate profit and loss?

Taking a standard account, if you buy 1 lot of let’s say USD/JPY with a quote of 97.38/97.41 (meaning you bought 1 lot at 97.41) and the moves up to 97.51 showing a new quote of 97.48/97.51 this means that your profit on that trade would be 7pips which is the difference between 97.48 and 97.41.

Using this quick formula: (0.01/97.48)*$100,000 = $10.25Thus profit = 7*10.25 = Approx $70

What is day trading?

A day trader is considered to be a speculator who buys and sells a security holding it for a short time lapse to profit from short-term price movement in the market.

What is a pip?

Pip stands for "percentage in point" and is the smallest increment of trade in FX. In the FX market, prices are quoted to the fourth decimal point, example 1.5000. Among the major currencies, the only exception to that rule is the Japanese yen; where the quotation is only taken out to two decimal points 0.01 as opposed to 0.0001 for other majors.

What is the percentage of successful traders on Forex?

Between 5-10 % of traders are profitable in the Forex world while the 90-95% remaining are the one losing money. Those traders that make up the 90-95% failing, enter the market driven by two things, firstly greed and secondly emotion which causes them to lose money.

What transaction costs will I pay?

Although dealers who are regulated by NFA must disclose their charges to retail customers, there are no rules about how dealers charge a customer for the services provided or that limit how much the dealer can charge. Some firms charge a per trade commission, while other firms charge a mark-up by widening the spread between the bid and ask prices they give their customers. You should read your agreement with the dealer carefully and be sure you understand how the firm will charge you for your trades.

How much money do I need to trade Forex?

Forex dealers can set their own minimum account sizes, so you will have to ask the dealer how much money you must put up to begin trading. Most dealers will also require you to have a certain amount of money in your account for each transaction. This security deposit, sometimes called margin, is a percentage of the transaction value and may be different for different currencies. Most brokers however allow you to open an account with as little as $250.

What risks are involved in Forex trading?

Although every investment involves some risk, the risk of loss in trading Forex can be substantial. Therefore, if you are considering participating in this market, you should understand some of the risks associated with this product so you can make an informed decision before investing. The only funds that should ever be used to speculate in foreign currency trading are funds that you can afford to lose without affecting your financial situation.