Forex Trading Overview

The forex market is the largest market in the world with daily reported volume of over 2.1 trillion making it one of the most exciting markets for trading. Currency 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.

Unlike other financial markets, the forex market has no physical location or central exchange. It is an over-the-counter market where buyers and sellers including banks, corporations, and private investors conduct business.

Currency trading takes place in financial trading centers all over the world, including New York, London, and Tokyo creating one cohesive, international market. The huge number and diversity of players involved make it difficult for even governments to control the direction of the market.

The unmatched liquidity and around-the-clock global activity make forex the ideal market for active traders. Traditionally the forex market was only available to larger entities trading currencies for commercial and investment purposes through banks.

Now trading platforms, such as the FX Trading Station, allow smaller financial institutions and retail investors access to a similar level of liquidity as the major foreign exchange banks, by offering rates provided by multiple global banks.

24-Hour a day, 6 days a week The FOREX Market never sleeps. A currency trader may take advantage of all market conditions at any time. There is no waiting for an opening bell. It is a 24-hour, continuous currency  exchange that never closes (normal dealing hours of operation are Sunday 5:15 pm through Friday 4 pm Eastern standard time), you can trade whenever you want: morning, noon or night. This is a very big advantage compared to stock trading with limited trading hours. No single entity one can control the market The Forex market has so many participants that no single entity, not even a central bank, can control the market price for an extended period of time. Even interventions by mighty central banks are becoming increasingly ineffectual and short lived, at the stock market, trade prices can be manipulated by stockbrokers and market makers. Large Liquidity in the FX With $2.1 trillion changing hands daily, the FX market is extremely liquid. This means you can rapidly buy and sell currencies at any offered market price. You can even set the online trading platform to quickly close your position at your desired profit level (limit order), and/or close a trade if a trade is going against you (stop order)**. Using a trailing stop can be a powerful tool to maximize your trading potential. Low transaction (spread) costs There are no brokerage commission fees for each FX transaction, for all the major currency pairs, the spread is can be as low as 2 pips.  High Leverage* FOREX investors are permitted to trade foreign currencies on a highly leveraged basis which could be up to 100 times their investment. An investment of US $1,000 controls US $100,000 of any particular currency. A small margin deposit can control a much larger total contract value. *Leverage without proper risk management, this high degree of leverage can lead to large losses as well as gains. Trading potential in both rising and falling markets Trading currency allows traders to trade during rising and falling markets. One can just as easily "short" a particular currency as go "long", because currencies trade in "pairs". Thus, when you buy a particular currency, you are actually simultaneously selling the other currency in that particular pair. As the market moves, one of the currencies will increase in value versus the other. Interbank market The backbone of the Forex market consists of a global network of dealers. They are mainly major commercial banks that communicate and trade with one another and with their clients through electronic networks and telephones. There are no organized exchanges to serve as a central location to facilitate transactions the way the New York Stock Exchange serves the equity markets. How Does FOREX Compare to Other Investment Markets?    FX MARKET EQUITIES MARKET FUTURES MARKET COMMISSION - FREE TRADING* X     AUTOMATED MARGIN WATCHER X ? ? SHORT SELLING WITHOUT AN UPTICK X   X 24 HOUR TRADING X   ? 100:1 LEVERAGE ON STANDARD ACCOUNTS** X     *The FCM and RB are compensated for their services through the spread between the bid/ask prices. **Leverage without proper risk management, this high degree of leverage can lead to large losses as well as gains ? = Futures and equities markets generally do not have the ability to automatically close out positions once equity falls below the required margin; as a result, margin requirements tend to be much greater, and the possibility of a debit balance is far more real. Also, while 24 hour trading is available via certain equities and futures brokers/dealers, liquidity in the after-hours market is sparse, hence making trading rather difficult and prone to excess risk. Commission-free trading: In the equities and futures markets, individuals generally place their orders with a broker, who in turn routes the order to a market maker or exchange where the order is actually executed. As a result, two parties charge fees: the broker charges a commission, and the firm who executes the order on the exchange charges a spread (a cost that is usually hidden in the equities and futures market, but is transparent in the FX market). In the FX market, you pay only a very small spread – and thus enjoy a much lower transaction cost. Which do you prefer? In the FX market the cost is limited to the spread In the currency market, you pay no commissions and no exchange fees because you deal directly with the market maker in a purely electronic online exchange. This eliminates both ticket costs and middleman brokerage fees. There is still a cost to initiating the trade, but that cost is reflected in the bid/ask spread that is also present in all markets including futures or equities trading. Combined with the tight, consistent, and fully transparent spread, currency trading costs are lower than any other market. Active stock traders often see substantial portions of their gross profit go to brokers in the form of commissions, and the exchanges in the form of exchange fees. Those equity brokers that advertise enticing commissions, do not have fixed spreads between the bid and ask and may vary with market conditions, particularly with smaller less liquid stocks. Automated Margin Watcher: Trading on margin, or with borrowed funds, in the equities and futures market is extremely risky, as the trader can be liable for more than their original deposit if the position goes against them. In the FX market, though, trading on margin does not possess the same risk: traders’ positions may be closed out if the position goes against them and their account value falls below their margin requirement. Short Selling Without An Uptick: Short selling, or the ability to enter a sell position and profit if the price goes down, is just as easy as buying in the currency market. While most equities markets have rules that hinder short selling – like the uptick rule, which states that the last price must have been an upward movement before a trader can enter a short order – the currency market does not have the same rules. Traders who think the euro will rise in value can simply buy euros and sell dollars; alternatively, those who think the euro will fall in value can sell euros and buy dollars, all through the same single trading account and with the same amount of ease. As a result, the currency market presents opportunities for trading regardless of economic cycles. 24 Hour Trading: While most exchanges have limited hours, the banks and market makers that operate the currency market are open 24 hours a day for trading. With FXCM in particular, clients are afforded access to the FX market from Sunday after 5:15 PM EST to Friday 4 PM EST - but can enjoy customer support for all issues 24 hours a day, 7 days a week. 100:1* Leverage on Standard Accounts: The leverage ratio, specifies the monetary amount a trader can trade above and beyond his/her initial deposit. The FX market allows for greater maximum leverage, and thus allows traders to more precisely customize their level of risk aversion. *Without proper risk management, this high degree of leverage can lead to large losses as well as gains

Online currency trading is the fastest growing market. The FOREX Market never sleeps. A currency trader may take advantage of all market conditions at any time. There is no waiting for an opening bell as in the case of trading stocks. It is a 24-hour, continuous currency exchange that never closes (normal hours of operation are Sunday 1pm through Friday 2pm Pacific standard time). This is very desirable for those who want to trade on a part-time basis, because you can choose when you want to trade: morning, noon or night.
e world. Traditionally the foreign exchange market was only available to larger entities trading currencies for commercial and investment purposes through banks. Now online currency trading platforms, such as the FX Trading Station, allow smaller financial institutions and retail investors access a similar level of liquidity as the major foreign exchange banks, by offering a gateway to the primary (Interbank) market.


About Quoting of Currency Pairs

The first currency in the pair is referred to as the base currency, and the second currency is the counter or quote currency. The U.S Dollar, as the world’s dominant currency, is usually considered the base currency for quotes, and includes USD/JPY, USD/CHF, and USD/CAD. This means that quotes are expressed as a unit of $1 USD per the other currency quoted in the pair. The exceptions are the Euro, Great Britain pound, and Australian dollar. These currencies are quoted as dollars per foreign currency.

As with all financial products, FX quotes include a "bid" and "ask". The bid is the price at which a market maker is willing to buy (and clients can sell) the base currency in exchange for the counter currency. The ask is the price at which a market maker will sell (and clients can buy) the base currency in exchange for the counter currency. The difference between the bid and the ask price is referred to as the spread.

In the wholesale market, currencies are quoted using five significant numbers, with the last placeholder called a point or a pip. In forex, like any traded instrument, there is an immediate cost in establishing a position. For example, USD/JPY may bid at 131.40 and ask at 131.45, this five-pip spread defines the trader’s cost, which can be recovered with a favorable currency move in the market. For our spreads on all the currency pairs we offer, click here.

How to Trade Your Forex Demo: Use this time to make a plan.

Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts.