The global foreign exchange (forex, FX) market is the largest financial market in the world, with average daily turnover over $3 trillion. By comparison, the New York Stock Exchange generates approximately $60 to $80 billion in daily traded volume. The forex market is an over-the-counter market comprised of participants from all parts of the world. Until the late 1990’s, only financial institutions, banks, and multinational corporations participated in the market for foreign exchange.
Why Trade FX?
Low Cost Trading: No clearing fees, exchange fees, government fees, brokerage fees or commissions.* Brokers are compensated for their services through the bid/ask spread (the bid/ask spread can be less than 0.1% under normal market conditions, depending on leverage).
Leverage: In forex trading a small margin deposit can control a much larger total contract value (up to 100:1 leverage). This high degree of leverage can lead to large losses as well as gains and requires proper risk management.
Strong Liquidity: The forex market is large (over $3T daily volume) and extremely liquid. Under normal market conditions traders can buy and sell instantaneously and do not get “stuck” in a trade. Traders can even set the online trading platform to automatically close a position at the desired profit level (a limit order), and/or close a trade if a trade is going against this position (a stop loss order).
Free Demo Accounts, News, Charts, and Analysis for Traders: Traders need only a computer and internet connection to begin trading. Free demo accounts are available that allow traders to practice trading, and access real-time forex news, analysis and charting services.
Trade FX 24 hours per day, 5.5 days per week**: The TRADE PRO FX platform offers access to the forex market from Sunday evening to Friday afternoon. The extended hours provide superior flexibility for traders to trade on their own schedule. Technical support is also available during trading hours.
Retail margin trading in foreign exchange is the latest addition to Trade Pro’s broad suite of products and services. Trade Pro’s forex trading platform (Trade Pro FX) features diverse liquidity, advanced technology, streaming quotes, executable prices, complete and reliable back office operations and technical support.
The TRADE PRO FX trading platform supports multiple order types to give traders complete control of order timing and execution, customizable charting capabilities and chart based trading, in addition to market access from the office, at home, or while traveling. It is easy to introduce your clients to retail forex with TRADE PRO FX; benefits include:
- Fully customizable user interface
- Capability to support multiple languages
- Real-time account information
- Completely adaptable charting
- Real-time news
- Over 40 technical analysis tools
FAQ: The Foreign Exchange Market
Currencies are traded for hedging, investing and speculative purposes by individuals, businesses, investors, commercial and investment banks, governments, and central banks. Corporate treasurers and some institutional investors have currency exposures during the regular course of business that are met through transaction in foreign exchange markets. Individuals and organizations also exchange currencies whenever they require foreign goods or services.
The most commonly traded currencies are: USD, EUR, JPY, GBP, CHF, CAD and AUD. The most commonly traded currency pair is EUR/USD. These currencies when paired together feature the greatest amount of liquidity and lower spreads than that of other currencies or when paired with minor or exotic currencies.
The following currencies are considered “majors” because they are frequently traded and feature strong liquidity: USD, EUR, JPY, GBP, CHF, CAD and AUD. Minors include the NZD, SEK, NOK, and DKK. Other currencies are considered “exotics” because they are not broadly traded.
Forex trading features deep liquidity, high leverage, and extended market hours. With stocks, the maximum leverage is 2:1 but forex trading on the TRADE PRO FX trading platform allows up to 100:1 leverage in certain pairs depending on order size. There are also no commissions, brokerage fees, exchange fees or government fees (brokers are compensated through the bid/ask spread). Forex trading differs from futures trading in that there is no fixed lot size. In the futures markets, lot or contract sizes are determined by the exchanges but in spot forex you can trade lots as small as 10,000 units of currency.
Finally, the majority of forex trading occurs in the seven major currencies. By contrast, NYSE Euronext has approximately 8,500 listed issues and another 3,800 are listed on the NASDAQ. Forex trading features fewer traded instruments and can be easier to follow than equities. The TRADE PRO FX trading platform provides technical analysis tools and news to support traders in their decisions.
FAQ: Trading FX
Forex trading is the simultaneous buying of one currency and the selling of another. The forex market is considered an over-the-counter market due to the fact that there is no exchange or central clearing house to support the transaction. In retail forex, currencies are generally traded through a broker or dealer, and are traded in pairs. Currencies are typically traded in lots (100,000 units = standard lot) and changes in quotes are measured in pips (the smallest whole fraction of an exchange rate).
A spot forex trade is the immediate execution of one currency against another at an agreed rate. The settlement date for these transactions is typically two business days later. Non-deliverable (retail) forex trading positions are automatically rolled nightly to avoid physical delivery of currency.
Non-deliverable forex contracts do not require physical delivery of cash, but instead settle on the contract-for-difference basis at the time when the initial market position is closed. If positions are held overnight, a procedure is performed that moves the settlement date to the next business day to avoid currency delivery. Retail traders engage in non-deliverable transactions, while institutional traders such as companies and banks use deliverable contracts to meet currency requirements and hedging objectives.
Currencies are priced in pairs, and all trades require the simultaneous purchase of one currency and sale of another. For example, the currency pair Euros versus US Dollars is expressed as EUR/USD. The first currency (EUR) will be bought (long position) while the other currency (USD) is sold (short position).
The bid/ask spread is difference between the bid price and the ask price. The bid price is the price at which the currency can be sold. The ask price is the price at which the currency can be bought. The bid/ask spread differs between currency pairs reflecting the liquidity of various currencies. More common pairs (majors) typically feature the tightest spreads.
Currency trading is designated "round trip" because the positions will be closed (settled) within the same account and same account currency from which the trades originated.
A pip (percentage in point) is the smallest value change in a currency pair exchange rate. If the Euro-Dollar currency pair (expressed as EUR/USD) moves from 1.3250 to 1.3251, that is one pip. Generally, this is the fourth decimal place, but be aware that currency pairs involving the Japanese Yen (JPY) are quoted with only two decimal places.
If a sixth digit is present it represents a fractional pip which provides more competitive, transparent and accurate pricing. The TRADE PRO FX platform clearly displays prices in fractions of a pip as illustrated below.
When trading foreign exchange, the value of a pip is dependent on two variables – the amount of currency and the currency pair. The pip is how you measure your profit or loss.
Each foreign exchange transaction implies an assigned value date that is typically two business days after the transaction is executed. For example, positions opened on Monday would have a value date of Wednesday. In retail forex, traders do not take delivery of currencies and therefore settlement must be moved to a future value date for positions held overnight. This process is called the position rollover.
At 5:00pm EST Monday - Friday a position rollover procedure is performed on all open positions for retail accounts.
The term “margin” refers to the amount required to hold or open a position. For example, if the margin requirement is 1% and a trader wishes to buy $1 million USD/JPY, $10,000 USD in margin is required in his or her account (1% of $1 million or 0.01 x 1,000,000 = $10,000).
Due to the relatively small fluctuations in foreign exchange rates (typically less than 1%-2% per day); retail forex trading is typically executed on margin. Trading on margin gives the trader the ability to hold larger positions than the actual account value.
Margin is often expressed in terms of leverage, which is the ratio of amount used in a transaction to the required deposit. The TRADE PRO FX trading platform allows as much as 100:1 leverage for majors, and 25:1 all other currency pairs.
Use of leverage creates the possibility to generate profits quickly, but also increases the risk of rapidly incurring losses. It is important to review the margin thresholds and limitations to determine proper trading strategies that incorporate risk management objectives.
There are a number of basic forex order types that facilitate efficient transactions. The TRADE PRO FX trading platform supports multiple order types including market orders, limit orders, stop loss, stop limits, trailing stops, and “if done” orders with qualifiers. The diverse order options allow traders to employ many different strategies to assist in protecting gains and containing losses. A review of order types and how to access them on the TRADE PRO FX trading platform can be found in the User Guide located on the trading platform.
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