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FOREX
FAQ
What
is Foreign Exchange?
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 U.S. dollar/yen. With a daily average turnover of approximately
U.S. $1.5 trillion, the Foreign Exchange market, also known
as the "Forex" or "FX" market, is the
largest financial market in the world.
Where
is the central location of the FX Market?
Unlike the
stock and futures markets, FX Trading is not centralized
on an exchange. Due to the fact that transactions are conducted
between two counterparts over the telephone or via an electronic
network, the FX market is considered an Over the Counter
(OTC) or 'Interbank' market.
Who
are the participants in the FX Market?
The reason
that the forex market is referred to as an 'Interbank' market
is 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?
Forex is a
true 24-hour market and trading begins each day in Sydney,
and then 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.
What
are the most commonly traded currencies in the FX markets?
The most frequently
traded or 'liquid' currencies are those of countries with
stable governments, respected central banks, and low inflation.
Nowadays, 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.
Is
Forex trading capital-intensive?
No. Swiss
requires a minimum deposit of just $500 for opening a Mini
account and $5000 for a regular account. Swiss enables
currency trading to be conducted on a highly leveraged basis.
You are able to select the degree of leverage or gearing
that you wish to employ in trading. Unless you specify otherwise,
Swiss sets your leverage level at Swiss most lenient requirement.
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.
What
is margin?
Margin is
a performance bond, or good faith deposit, to ensure against
trading losses. The margin requirement allows you to hold
a position much larger than your actual account value. our
online trading platform performs an automatic pre-trade
check for margin availability, and will only execute the
trade if you have sufficient margin funds in your account.
The system also calculates the funds needed for current
positions and displays this information to you in real time.
In the event that funds in your account fall below margin
requirements, our Trading Station will close all open positions.
This prevents your account from ever falling into a negative
equity position even in a highly volatile, fast- moving
market.
What
does it mean to have a 'long' or 'short' position?
A long position
is simply 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 in the other.
What
about terms like "bid/ask," "spread,"
and "rollover?"
Swiss has
an extensive Glossary, that provides detailed definitions
of all forex related terms.
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 Swiss normal trading hours at 12 A.M.
Kuwait Local time. Overnight positions are positions that
are still on at the end of normal trading hours (12 A.M.
Kuwait Local Time), which are automatically rolled by Swiss
How
are currency prices determined?
Currency prices
are affected by a variety of economic and political conditions,
but probably the most important are interest rates, inflation
and political stability. Sometimes governments actually
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 limit
order and the stop-loss order are the most common risk management
tools in FX trading. 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. RefcoFX guarantees execution of stop-loss and
limit orders, at the specified price, on all orders up to
$1 million.
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 analysis 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.
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 often
as 10 times a day. Most importantly, by not charging commission
and offering tight spreads, Swiss customers can take positions
as often as necessary without worrying about excessive transaction
costs.
How
long are positions maintained?
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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