Forex FAQ's
What is Foreign Exchange?
What is Spot?
Where is the central location of the FX Market?
Who are the participants in the FX Market?
When is the FX market open for trading?
What are the most commonly traded currencies in the FX markets?
Is Forex trading expensive?
What is Margin?
What does it mean have a 'long' or 'short' position?
What is the difference between an "intraday" and "overnight position"?
How are currency prices determined?
How do I manage risk?
What kind of trading strategy should I use?
How often are trades made?
How long are positions maintained? What is Foreign Exchange?The Foreign Exchange market, also referred to as the "Forex" market, is the largest financial market in the world, with a daily average turnover of approximately US$1.2 trillion. Foreign Exchange is the simultaneous buying of one currency and selling of another. The world's currencies are on a floating exchange rate and are always traded in pairs, for example Euro/Dollar or Dollar/Yen. What is Spot?Spot transactions involve the exchange of two currencies at a rate agreed on the date of the contract for delivery in two business days. These are simple, highly standardised deals which take place in a very liquid market and account for about 40% of all foreign exchange trading. FFH trade exclusively with IFX Commerce. IFX has banking lines with the world's top rated banks. They take the price feed directly from the inter-bank market. As a result, the price delivered is highly competitive from the smallest trade to the largest. IFX quote on all major currencies pairs including minor and cross pairs. The state-of-the-art dealing platform is probably the fastest and most effective Internet trading solution for Forex available. It offers real-time, tradable prices in 20 spot currency pairs. The feed for the pricing engine is derived from the inter-bank trading systems, which account for some 90% of global FX volume. So the quotations you receive on the trading platform are as accurate and transparent as any. Where is the central location of the FX Market?FX Trading is not centralized on an exchange, as with the stock and futures markets. The FX market is considered an Over the Counter (OTC) or 'Interbank' market, due to the fact that transactions are conducted between two counterparts over the telephone or via an electronic network. Who are the participants in the FX Market?The Forex market is called an 'Interbank' market due to the fact that historically it has been dominated by banks, including central banks, commercial banks, and investment banks. However, the percentage of other market participants is rapidly growing, and now includes large multinational corporations, global money managers, registered dealers, international money brokers, futures and options traders, and private speculators. When is the FX market open for trading?A true 24-hour market, Forex trading begins each day here in Wellington, and moves around the globe as the business day begins in each financial centre, first to Tokyo, then London, and New York. Unlike many other financial markets, 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 commonly traded currencies in the FX markets?The most often traded or 'liquid' currencies are those of countries with stable governments, respected central banks, and low inflation. Today, over 85% of all daily transactions involve trading of the major currencies, which include the US Dollar (USD) , Japanese Yen (JPY) , Euro (EUR) , British Pound (GBP), Swiss Franc (CHF) , Canadian Dollar (CAD) and the Australian Dollar (AUD). Is Forex trading expensive?No. Forex From Home requires a minimum deposit of $1000. Forex From Home allows customers to execute margin trades at up to 100:1 leverage. This means that investors can execute trades of $10,000 with an initial margin requirement of $100. However, it is important to remember that while this type of leverage allows investors to maximize their profit potential, the potential for loss is equally great. A more pragmatic margin trade for someone new to the FX markets would be 3:1 but ultimately depends on the investor's appetite for risk. What is Margin?Margin is essentially collateral for a position. It allows traders to take on leveraged positions with a fraction of the equity necessary to fund the trade. In the equity markets, the usual margin allowed is 50% which means an investor has double the buying power. In the forex market leverage ranges from 10-100% giving investors the high leverage needed to trade actively. What does it mean have a 'long' or 'short' position?In trading parlance, a long position is one in which a trader buys a currency at one price and aims to sell it later at a higher price. In this scenario, the investor benefits from a rising market. A short position is one in which the trader sells a currency in anticipation that it will depreciate. In this scenario, the investor benefits from a declining market. However, it is important to remember that every FX position requires an investor to go long in one currency and short 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 From Home's normal trading hours at 4:30pm ET . Overnight positions are positions that are still on at the end of normal trading hours (4:30pm ET), which are automatically rolled by Forex From Home at competitive rates (based on the currencies interest rate differentials) to the next day's price. How are currency prices determined?Currency prices are affected by a variety of economic and political conditions, most importantly interest rates, inflation and political stability. Moreover, governments sometimes 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. Any of these factors, as well as large market orders, can cause high volatility in currency prices. However, the size and volume of the Forex market makes it impossible for any one entity to "drive" the market for any length of time. How do I manage risk?The most common risk management tools in FX trading are the limit order and the stop loss order. A limit order places restriction on the maximum price to be paid or the minimum price to be received. A stop loss order ensures a particular position is automatically liquidated at a predetermined price in order to limit potential losses should the market move against an investor's position. The liquidity of the Forex market ensures that limit order and stop loss orders can be easily executed. What kind of 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 rumour. 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 are trades made?Market conditions dictate trading activity on any given day. As a reference, the average small to medium trader might trade as little as 3 to 5 times a day. Most importantly, by charging a relatively low US$1.25 commission, Forex From Home customers can take positions as often as necessary without worrying about excessive transaction costs. How long are positions maintained?Approximately 80% of all forex trades last seven days or less, while more than 40% last fewer than two days. As a general rule, a position is kept open until one of the following occurs: 1) realization of sufficient profits from a position; 2) the specified stop-loss is triggered; 3) another position that has a better potential appears and you need these funds.
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