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Forex Trading - Spot Forex FAQ’s |
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What is forex? What is forex? The Foreign Exchange market, also referred to as the "Forex" or "FX" market, is the largest financial market in the world, with a daily average turnover of approximately US$1.5 trillion. Forex trading 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 Pound/Franc. Where is the central location of the forex market? Forex Trading is not centralized on an exchange, as it is within the futures markets. The forex market is considered an Over the Counter (OTC) or 'Interbank' market, due to the fact that forex transactions are conducted between two counterparts over the telephone or via an electronic network. Forex Trading - Top of Forex Trading FAQ’s Page Who are the participants in the forex 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 forex 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. Forex Trading - Top of Forex Trading FAQ’s Page When is the forex market open for trading? A true 24-hour market, forex trading begins each day in Sydney, and moves around the globe as the business day begins in each financial center, first to Tokyo, then London, and 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. Forex Trading - Top of Forex Trading FAQ’s Page What are the most commonly traded currencies in the forex 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 U.S. Dollar, Japanese Yen, Euro, British Pound, Swiss Franc, Canadian Dollar and the Australian Dollar. Forex Trading - Top of Forex Trading FAQ’s Page Is forex trading capital intensive? No. Aaron Trading requires a minimum deposit of $2,500 for full size transactions and $1250 for mini deals Forex Trading - Top of Forex Trading FAQ’s Page Margin is essentially collateral for a forex position. If the market moves against a customer's position, Aaron Trading or ADM Investor Services will request additional funds through a "margin call." If there are insufficient available funds, Aaron Trading or ADM Investor Services will immediately close out the customer's open forex positions. Forex Trading - Top of Forex Trading FAQ’s Page What does it mean have a ' long' or 'short' forex 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 forex position requires an investor to go long in one currency and short the other. Forex Trading - Top of Forex Trading FAQ’s Page What is the difference between an "intra-day" and "overnight fx position"? Intra-day forex positions are all positions opened anytime during the 24 hour period AFTER the close of normal trading hours at 4:30pm EST. Overnight forex positions are positions that are still on at the end of normal trading hours (4:30pm EST), which are automatically rolled at competitive rates (based on the currencies interest rate differentials) to the next day's price. Forex Trading - Top of Forex Trading FAQ’s Page How are forex currency prices determined? Forex 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. Forex Trading - Top of Forex Trading FAQ’s Page How do I manage fx market risk? The most common risk management tools in forex 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. Forex Trading - Top of Forex Trading FAQ’s Page What kind of trading strategy should I use? Forex 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 rumor. 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. Forex Trading - Top of Forex Trading FAQ’s Page How often are foreign exchange trades made? Market conditions dictate trading activity on any given day. As a reference, the average small to medium forex trader might trade as often as 10 times a day. Most importantly, by not charging commission, Aaron Trading customers can take positions as often as necessary without worrying about excessive forex transaction costs. Forex Trading - Top of Forex Trading FAQ’s Page How long are spot forex trading positions maintained? As a general rule, a forex 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. Forex Trading - Top of Forex Trading FAQ’s Page I’m interested in spot forex trading, but would like some additional information. In the forex market section we describe the forex market in some detail. In order to gain a practical understanding of forex trading, there is no better way than to open a forex trading demo account, where you can experience what it's like to trade the forex market without risking any capital. Forex Trading - Top of Forex Trading FAQ’s Page |
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