What is Forex Trading?
FX Trading provides an online trading platform for individuals that want to speculate on the exchange rate between two currencies. In doing so, traders buy and sell currencies with the hope of making a profit when the value of the currencies changes in their favor, whether from market news or events that take place in the world. The Forex market is the largest market in the world with daily reported volume of over $1.8 trillion, making it one of the most exciting markets for trading.
Why trade the Forex Market?
Over the last three decades the foreign exchange market has
become the world's largest financial market, with over $1.5 trillion
USD traded daily. Forex is part of the bank-to-bank currency market
known as the 24-hour Interbank market. The Interbank market
literally follows the sun around the world, moving from major
banking centers of the United States to Australia, New Zealand to
the Far East, to Europe then back to the United States.
Until recently, the forex market wasn't for the average trader or
individual speculator. With the large minimum transaction sizes and
often-stringent financial requirements, banks, hedge funds, major
currency dealers and the occasional high net-worth individual
speculator were the principal participants. These large traders were
able to take advantage of the many benefits offered by the forex
market vs. other markets, including fantastic liquidity and the
strong trending nature of the world's primary currency exchange
rates.
Market Hours
The spot Forex market is unique to any other market in the world; trading 24-hours a day. Somewhere around the world a financial center is open for business and banks and other institutions exchange currencies every hour of the day and night, only stopping briefly on the weekend. Foreign exchange markets follow the sun around the world, giving traders the flexibility of determining their trading day and the ability to take advantage of global economic events.
Buying/Selling
First, the trader should determine whether they want to buy or sell a currency pair. If they want to enter a short order - whereby they will profit if the exchange rate falls - they simply need to click on the SELL rate. The opposite holds true for traders who enter buy orders: they can simply click on the BUY rate, and thus will profit if the exchange rate goes up.
Margin
The margin deposit in Forex is not a down payment on a purchase of equity, as many perceive margins to be in the stock markets. Rather, the margin is a performance bond, or good faith deposit, to ensure against trading losses. FX Trading\'s 400:1 leverage allows traders to open one $100,000 standard lot with only $250 of equity, allowing them to hold a position much larger than the account value. FX Trading\'s online trading platform has margin management capabilities, which allow for this high leverage.
FX Trading does not close positions based on margin, but on equity. With our negative balance protection, your positions will be closed at either $500 of remaining equity (equity equals account balance plus or minus open positions) in a standard account or $50 of remaining equity in a mini account. This prevents clients\' accounts from losing more than their initial deposit, even in a highly volatile, fast moving market.
Rollover/Premium
For positions open at 5pm EST, there is a daily rollover interest rate that a trader either pays or earns, depending on your established margin and position in the market. If you do not want to earn or pay interest on your positions, simply make sure it is closed at 5pm EST, the established end of the market day. Since every currency trade involves borrowing one currency to buy another, interest rollover charges are an inherent part of Forex trading. Interest is paid on the currency that is borrowed, and earned on the one that is purchased. If a client is buying a currency with a higher interest rate than the one he/she is borrowing, the net differential will be positive - and the client will earn funds as a result.
