Selasa, 28 Februari 2012
What is Forex?
FOREX — the foreign exchange market or currency market or Forex is the market where one currency is traded for another. It is one of the largest markets in the world.
Some of the participants in this market are simply seeking to exchange a foreign currency for their own, like multinational corporations which must pay wages and other expenses in different nations than they sell products in. However, a large part of the market is made up of currency traders, who speculate on movements in exchange rates, much like others would speculate on movements of stock prices. Currency traders try to take advantage of even small fluctuations in exchange rates.
In the foreign exchange market there is little or no 'inside information'. Exchange rate fluctuations are usually caused by actual monetary flows as well as anticipations on global macroeconomic conditions. Significant news is released publicly so, at least in theory, everyone in the world receives the same news at the same time.
Currencies are traded against one another. Each pair of currencies thus constitutes an individual product and is traditionally noted XXX/YYY, where YYY is the ISO 4217 international three-letter code of the currency into which the price of one unit of XXX currency is expressed. For instance, EUR/USD is the price of the euro expressed in US dollars, as in 1 euro = 1.2045 dollar.
Unlike stocks and futures exchange, foreign exchange is indeed an interbank, over-the-counter (OTC) market which means there is no single universal exchange for specific currency pair. The foreign exchange market operates 24 hours per day throughout the week between individuals with Forex brokers, brokers with banks, and banks with banks. If the European session is ended the Asian session or US session will start, so all world currencies can be continually in trade. Traders can react to news when it breaks, rather than waiting for the market to open, as is the case with most other markets.
Average daily international foreign exchange trading volume was $4.0 trillion in April 2010 according to the BIS triennial report.
Like any market there is a bid/offer spread (difference between buying price and selling price). On major currency crosses, the difference between the price at which a market maker will sell ("ask", or "offer") to a wholesale customer and the price at which the same market-maker will buy ("bid") from the same wholesale customer is minimal, usually only 1 or 2 pips. In the EUR/USD price of 1.4238 a pip would be the '8' at the end. So the bid/ask quote of EUR/USD might be 1.4238/1.4239.
This, of course, does not apply to retail customers. Most individual currency speculators will trade using a broker which will typically have a spread marked up to say 3-20 pips (so in our example 1.4237/1.4239 or 1.423/1.425). The broker will give their clients often huge amounts of margin, thereby facilitating clients spending more money on the bid/ask spread. The brokers are not regulated by the U.S. Securities and Exchange Commission (since they do not sell securities), so they are not bound by the same margin limits as stock brokerages. They do not typically charge margin interest, however since currency trades must be settled in 2 days, they will "resettle" open positions (again collecting the bid/ask spread).
Individual currency speculators can work during the day and trade in the evenings, taking advantage of the market's 24 hours long trading day.
Some of the participants in this market are simply seeking to exchange a foreign currency for their own, like multinational corporations which must pay wages and other expenses in different nations than they sell products in. However, a large part of the market is made up of currency traders, who speculate on movements in exchange rates, much like others would speculate on movements of stock prices. Currency traders try to take advantage of even small fluctuations in exchange rates.
In the foreign exchange market there is little or no 'inside information'. Exchange rate fluctuations are usually caused by actual monetary flows as well as anticipations on global macroeconomic conditions. Significant news is released publicly so, at least in theory, everyone in the world receives the same news at the same time.
Currencies are traded against one another. Each pair of currencies thus constitutes an individual product and is traditionally noted XXX/YYY, where YYY is the ISO 4217 international three-letter code of the currency into which the price of one unit of XXX currency is expressed. For instance, EUR/USD is the price of the euro expressed in US dollars, as in 1 euro = 1.2045 dollar.
Unlike stocks and futures exchange, foreign exchange is indeed an interbank, over-the-counter (OTC) market which means there is no single universal exchange for specific currency pair. The foreign exchange market operates 24 hours per day throughout the week between individuals with Forex brokers, brokers with banks, and banks with banks. If the European session is ended the Asian session or US session will start, so all world currencies can be continually in trade. Traders can react to news when it breaks, rather than waiting for the market to open, as is the case with most other markets.
Average daily international foreign exchange trading volume was $4.0 trillion in April 2010 according to the BIS triennial report.
Like any market there is a bid/offer spread (difference between buying price and selling price). On major currency crosses, the difference between the price at which a market maker will sell ("ask", or "offer") to a wholesale customer and the price at which the same market-maker will buy ("bid") from the same wholesale customer is minimal, usually only 1 or 2 pips. In the EUR/USD price of 1.4238 a pip would be the '8' at the end. So the bid/ask quote of EUR/USD might be 1.4238/1.4239.
This, of course, does not apply to retail customers. Most individual currency speculators will trade using a broker which will typically have a spread marked up to say 3-20 pips (so in our example 1.4237/1.4239 or 1.423/1.425). The broker will give their clients often huge amounts of margin, thereby facilitating clients spending more money on the bid/ask spread. The brokers are not regulated by the U.S. Securities and Exchange Commission (since they do not sell securities), so they are not bound by the same margin limits as stock brokerages. They do not typically charge margin interest, however since currency trades must be settled in 2 days, they will "resettle" open positions (again collecting the bid/ask spread).
Individual currency speculators can work during the day and trade in the evenings, taking advantage of the market's 24 hours long trading day.
Questions
WHERE IS FOREX MARKET LOCATED?
Unlike stock and future markets, Forex trading is decentralized, i.e. it doesn’t have a specific location. Let’s say, one party may be in Singapore, and another in Canada. As long as all transactions are arranged either via phone or electronic network, Forex market is considered to be retail, or interbank market.
HOW PROFITABLE IS IT TO TRADE IN FOREX?
Warren Buffett, the richest person in the world, one of the world’s most famous investors, trades in Forex.
Bill Gates, Microsoft Software Company owner, has already appreciated Forex advantages. Of course, they are Forex elite. However, even these facts show the amount of money involved in it. And hence, day by day, traders get more and more chances for success. Daily volume of deals in Forex is about 3 trillion dollars. And it depends only on you, what part of this money you will take for yourself.
WHERE DOES THE PROFIT COME FROM?
The principle is rather simple: buy cheap, sell expensive. And vice versa: sell expensive - buy cheap. Currency exchange rates constantly change, and it is always possible to make good money on this difference. The thing is that many major traders do not speculate themselves, but just execute orders of major clients – trading organizations, banks, financial institutions - that on some reasons need to convert one currency into another one. And they do not care what the exact rate is, i.e. they are ready to give away the money to those who trade in Forex constantly.
WHAT ARE THE MOST OFTEN TRADED CURRENCIES IN FOREX?
Most traded currencies, or “liquid” currencies, are the currencies of the countries with stable governments, responsible central banks, and low inflation rates. Nowadays, over 85% of daily trading includes major currencies: US Dollar, Japanese Yen, Euro, British Pound, Swiss Franc, Canadian Dollar and Australian Dollar.
DOES FOREX WORK ON THE SAME PRINCIPLES AS STOCK MARKETS?
No, it does not. If in the stock market it is possible to receive gain only when the prices increase (with the exception of hedging mechanism), in Forex, you can make money not only when prices go up, but when they go down as well.
WHAT IS REALISTIC POSSIBLE MONTHLY GAIN IN FOREX?
It depends on your talent. It is realistic to have 100% per year. Anything more than that is a game akin to roulette. However, many people in the world surpass this level, and do it continuously. You can gain more if you use a worked-through system without increasing risks. Forex trading deals with the future, i.e. with uncertainty. No one forbids to dream of earning more, but it is necessary to have little at the same time. The most important thing in Forex is not the gain rate (even making 500% per month 5 months in a row), but the time of being in the market and security of capital during this time.
IS FOREX A LOTTERY OR NOT?
Forex market is not a lottery where you can win money or not. Here, you need to count not on your luck, but on your professional skills. In order to obtain these skills, one has to practice: learn basics of foreign exchange and investments markets, study major approaches to Forex market prognostics and market analysis basics. If you do not have sufficient knowledge, you may be certain that your trading account will not survive longer than two months. It means if you still have decided to earn in Forex, you should pay serious attention to training before opening your account. Everybody decides for themselves what Forex is. It is a lottery to some, but it is a profitable job to someone else.
TIMES NEW ROMAN?
It is possible to use Forex as an additional source of income as there are no guarantees that you will become a successful trader. In the future, perhaps - yes, in the beginning – no. Real Forex is not a gold mine or some kind of trap. However, for those who want quick gain, it is a trap. In order to become a good trader, one must not pursue money; it is necessary to study the market.
HOW MUCH DO I HAVE TO LOSE TO GET EXPERIENCE?
It is not necessary to lose your first deposit. Many traders succeed from the initial deposit.
WHERE DO I START THEN?
With demo and competitive accounts.
HOW SHOULD I LEARN?
Look at the charts, analyze, and ask yourself: “Why did it happen?” Watch the trends and their changes, and soon you will become a good trader. You can keep a diary where you will describe your operations and why you did exactly so. It will help you to analyze your actions. You should also read books , on Forex; you can find them on our website.
IS IT POSSIBLE TO LEARN FOREX QUICKLY?
It is. However, many people have studied Forex all their lives. If you want trading to become your profession, you need to be earnest about it.
WHAT EDUCATION DO I NEED IN ORDER TO WORK SUCCESSFULLY?
Practice shows, here success is achieved by those who strive for it, and who are hard-working at the moment of learning training material on Forex. And education itself is not a crucial factor, even though it’s preferable.
ARE QUOTATIONS THE SAME IN DEMO AND REAL ACCOUNTS?
In our company – yes, they are.
HOW LONG CAN I USE A DEMO ACCOUNT?
The validity period of a demo account is unlimited. However, if you open a trading account but do not perform any trading operations for a period of 30 days the demo account will be closed. You can open a new demo account at any time by using “Accounts” – “Open Account” option in MetaTrader 4 trading platform.
HOW MUCH MONEY DO I NEED TO START TRADING IN FOREX?
Minimal amount to start trading is 500 US dollars. Perhaps, some would think it very little for such a reliable dealing center, and vice versa, some would think it’s a lot. Nevertheless, we can surely tell you that this amount is minimal for covering our losses for opening and maintaining your account. Brokers allow arranging transactions with bigger leverage. While opening an account you can choose the leverage size or change it according to your desire. However, you should remember, that in spite of the fact that the type of leverage enables investors to increase his/her potential gain, possible loss may be as big.
WHAT IS MARGIN
Margin is security funds necessary to collateralize trading losses. Margin requirement allows holding positions exceeding the funds in your account. The majority of online trading platform brokers conduct an automatic pre-trading margin requirements check-up and they only allow arranging transaction in case of sufficient margin funds availability in your account. These systems also calculate the funds necessary for existing positions and show information about them online. In case the level of funds in your account drops lower than the margin requirement, some or all open positions will be closed. It allows to protect your account from losses greater than the amount of funds in it, even in highly volatile and moving market.
HOW IS THE MARGIN FOR OPENING THE POSITION CALCULATED?
Before calculating the margin for opening the position we should consider leverage size and base currency.
Base currency is the currency that goes first in the quotation. Example:
EURUSD – EUR is the base currency;
USDJPY – USD is the base currency;
GBPJPY – GBP is the base currency.
Let’s consider the formula of how to calculate margin in the base currency.
Margin = Contract / Leverage
where:
Margin – margin size (let’s name it X);
Contract – contract size in the base currency (let’s name it Y);
Leverage – size of leverage (let\s name it L).
Example:
leverage 1:100 means L=100
leverage 1:500 means L=500.
EXAMPLE:
Let’s consider the deal volume of 1 lot with L=1:100. the lot size is always 100,000 of base currency (i.e. Y=100,000, L=100).
So:
X=Y/L=100,000/100=1000
Thus, for opening the position you need the margin of 1,000 base currency.
If the base currency is USD, the margin will be 1,000 USD.
If the base currency is not US dollar, but euro for example, the margin in the deposit currency (in US dollars) will equalize 1000*k, where k is the current currency rate against dollar.
For example, if EURUSD rate is 1,3000, the margins fro buying one lot will equalize 1000x1,3= 1300 USD.
WHAT DOES “LONG” OR “SHORT” POSITION MEAN
Long position is a position when a trader buys currency at one price, intending to sell it later at a higher price. In this case, an investor gains if market prices increase.
Short position is a position when a trader sells currency anticipating its decline. In this case, an investor gains if market prices decrease. However, it is important to remember that each position in Forex requires an investor to be “long” in one currency, and “short” in another one.
HOW ARE THE CURRENCY QUOTATIONS FORMED?
Various economic and political conditions influence currency quotations, most important of them being interest rates, inflation, and political stability. Sometimes, governments enter Forex market, adjusting currencies exchange rates by legislative methods. Also, they can fill the market with their currencies trying to decrease their prices, or vice versa, buying the currency for its price increase. These actions are known as Central Bank interventions. Any of these factors, as well as a great amount of market transactions, can cause high volatility of quotes. However, the size and scale of the market make it impossible for anyone to control it for a long time.
Unlike stock and future markets, Forex trading is decentralized, i.e. it doesn’t have a specific location. Let’s say, one party may be in Singapore, and another in Canada. As long as all transactions are arranged either via phone or electronic network, Forex market is considered to be retail, or interbank market.
HOW PROFITABLE IS IT TO TRADE IN FOREX?
Warren Buffett, the richest person in the world, one of the world’s most famous investors, trades in Forex.
Bill Gates, Microsoft Software Company owner, has already appreciated Forex advantages. Of course, they are Forex elite. However, even these facts show the amount of money involved in it. And hence, day by day, traders get more and more chances for success. Daily volume of deals in Forex is about 3 trillion dollars. And it depends only on you, what part of this money you will take for yourself.
WHERE DOES THE PROFIT COME FROM?
The principle is rather simple: buy cheap, sell expensive. And vice versa: sell expensive - buy cheap. Currency exchange rates constantly change, and it is always possible to make good money on this difference. The thing is that many major traders do not speculate themselves, but just execute orders of major clients – trading organizations, banks, financial institutions - that on some reasons need to convert one currency into another one. And they do not care what the exact rate is, i.e. they are ready to give away the money to those who trade in Forex constantly.
WHAT ARE THE MOST OFTEN TRADED CURRENCIES IN FOREX?
Most traded currencies, or “liquid” currencies, are the currencies of the countries with stable governments, responsible central banks, and low inflation rates. Nowadays, over 85% of daily trading includes major currencies: US Dollar, Japanese Yen, Euro, British Pound, Swiss Franc, Canadian Dollar and Australian Dollar.
DOES FOREX WORK ON THE SAME PRINCIPLES AS STOCK MARKETS?
No, it does not. If in the stock market it is possible to receive gain only when the prices increase (with the exception of hedging mechanism), in Forex, you can make money not only when prices go up, but when they go down as well.
WHAT IS REALISTIC POSSIBLE MONTHLY GAIN IN FOREX?
It depends on your talent. It is realistic to have 100% per year. Anything more than that is a game akin to roulette. However, many people in the world surpass this level, and do it continuously. You can gain more if you use a worked-through system without increasing risks. Forex trading deals with the future, i.e. with uncertainty. No one forbids to dream of earning more, but it is necessary to have little at the same time. The most important thing in Forex is not the gain rate (even making 500% per month 5 months in a row), but the time of being in the market and security of capital during this time.
IS FOREX A LOTTERY OR NOT?
Forex market is not a lottery where you can win money or not. Here, you need to count not on your luck, but on your professional skills. In order to obtain these skills, one has to practice: learn basics of foreign exchange and investments markets, study major approaches to Forex market prognostics and market analysis basics. If you do not have sufficient knowledge, you may be certain that your trading account will not survive longer than two months. It means if you still have decided to earn in Forex, you should pay serious attention to training before opening your account. Everybody decides for themselves what Forex is. It is a lottery to some, but it is a profitable job to someone else.
TIMES NEW ROMAN?
It is possible to use Forex as an additional source of income as there are no guarantees that you will become a successful trader. In the future, perhaps - yes, in the beginning – no. Real Forex is not a gold mine or some kind of trap. However, for those who want quick gain, it is a trap. In order to become a good trader, one must not pursue money; it is necessary to study the market.
HOW MUCH DO I HAVE TO LOSE TO GET EXPERIENCE?
It is not necessary to lose your first deposit. Many traders succeed from the initial deposit.
WHERE DO I START THEN?
With demo and competitive accounts.
HOW SHOULD I LEARN?
Look at the charts, analyze, and ask yourself: “Why did it happen?” Watch the trends and their changes, and soon you will become a good trader. You can keep a diary where you will describe your operations and why you did exactly so. It will help you to analyze your actions. You should also read books , on Forex; you can find them on our website.
IS IT POSSIBLE TO LEARN FOREX QUICKLY?
It is. However, many people have studied Forex all their lives. If you want trading to become your profession, you need to be earnest about it.
WHAT EDUCATION DO I NEED IN ORDER TO WORK SUCCESSFULLY?
Practice shows, here success is achieved by those who strive for it, and who are hard-working at the moment of learning training material on Forex. And education itself is not a crucial factor, even though it’s preferable.
ARE QUOTATIONS THE SAME IN DEMO AND REAL ACCOUNTS?
In our company – yes, they are.
HOW LONG CAN I USE A DEMO ACCOUNT?
The validity period of a demo account is unlimited. However, if you open a trading account but do not perform any trading operations for a period of 30 days the demo account will be closed. You can open a new demo account at any time by using “Accounts” – “Open Account” option in MetaTrader 4 trading platform.
HOW MUCH MONEY DO I NEED TO START TRADING IN FOREX?
Minimal amount to start trading is 500 US dollars. Perhaps, some would think it very little for such a reliable dealing center, and vice versa, some would think it’s a lot. Nevertheless, we can surely tell you that this amount is minimal for covering our losses for opening and maintaining your account. Brokers allow arranging transactions with bigger leverage. While opening an account you can choose the leverage size or change it according to your desire. However, you should remember, that in spite of the fact that the type of leverage enables investors to increase his/her potential gain, possible loss may be as big.
WHAT IS MARGIN
Margin is security funds necessary to collateralize trading losses. Margin requirement allows holding positions exceeding the funds in your account. The majority of online trading platform brokers conduct an automatic pre-trading margin requirements check-up and they only allow arranging transaction in case of sufficient margin funds availability in your account. These systems also calculate the funds necessary for existing positions and show information about them online. In case the level of funds in your account drops lower than the margin requirement, some or all open positions will be closed. It allows to protect your account from losses greater than the amount of funds in it, even in highly volatile and moving market.
HOW IS THE MARGIN FOR OPENING THE POSITION CALCULATED?
Before calculating the margin for opening the position we should consider leverage size and base currency.
Base currency is the currency that goes first in the quotation. Example:
EURUSD – EUR is the base currency;
USDJPY – USD is the base currency;
GBPJPY – GBP is the base currency.
Let’s consider the formula of how to calculate margin in the base currency.
Margin = Contract / Leverage
where:
Margin – margin size (let’s name it X);
Contract – contract size in the base currency (let’s name it Y);
Leverage – size of leverage (let\s name it L).
Example:
leverage 1:100 means L=100
leverage 1:500 means L=500.
EXAMPLE:
Let’s consider the deal volume of 1 lot with L=1:100. the lot size is always 100,000 of base currency (i.e. Y=100,000, L=100).
So:
X=Y/L=100,000/100=1000
Thus, for opening the position you need the margin of 1,000 base currency.
If the base currency is USD, the margin will be 1,000 USD.
If the base currency is not US dollar, but euro for example, the margin in the deposit currency (in US dollars) will equalize 1000*k, where k is the current currency rate against dollar.
For example, if EURUSD rate is 1,3000, the margins fro buying one lot will equalize 1000x1,3= 1300 USD.
WHAT DOES “LONG” OR “SHORT” POSITION MEAN
Long position is a position when a trader buys currency at one price, intending to sell it later at a higher price. In this case, an investor gains if market prices increase.
Short position is a position when a trader sells currency anticipating its decline. In this case, an investor gains if market prices decrease. However, it is important to remember that each position in Forex requires an investor to be “long” in one currency, and “short” in another one.
HOW ARE THE CURRENCY QUOTATIONS FORMED?
Various economic and political conditions influence currency quotations, most important of them being interest rates, inflation, and political stability. Sometimes, governments enter Forex market, adjusting currencies exchange rates by legislative methods. Also, they can fill the market with their currencies trying to decrease their prices, or vice versa, buying the currency for its price increase. These actions are known as Central Bank interventions. Any of these factors, as well as a great amount of market transactions, can cause high volatility of quotes. However, the size and scale of the market make it impossible for anyone to control it for a long time.
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