Forex

What is Forex?

The Foreign Exchange Market is a non-stop cash market where currencies of nations are traded. It is the largest financial market, trading at more than $2.9 trillion a day. The global currency market has been the market of choice for global hedge funds and institutional investors for years. Now, more than 4,600 international banks and thousands of small and large scale speculators participate in this highly liquid market. This exciting and rapidly growing financial market is now available to individual investors. With as little as a few hundred dollars, you can take part in this market that is open 24 hours a day, 6 days a week. The barriers to entry are very low; traders can enter the market whenever and wherever they please. Foreign currencies are bought and sold across local and global markets constantly and simultaneously. Traders' investments are affected by the increase or decrease in currency value movements. It can change at any time in response to real-time events.

How Are Profits Made in the Forex Market?

Profits are made by utilizing margin trading, where a relatively small amount of money is required in order to control much larger positions in the market. Always remember that trading currencies is risky and you may lose some or all of your investment. Also, this high degree of leverage without proper risk management can lead to both large gains as well as large losses. Brokers normally require a 1% margin deposit. Therefore $1000 controls $100,000 of the traded currency.

Currencies are traded in lots, 1 lot is equal to $1000 which controls $100,000 in currency. A margin call occurs when your trading account drops below this minimum of $1000 per traded lot. If this occurs, your broker may close your position automatically.

Currencies are traded on a price interest point system (pip). Each currency pair has its own pip value. A trader's goal is to capture as many profitable pips as possible. Some pip values are fixed while others can fluctuate slightly as one currency gains or loses strength against the other. The more pips you accumulate, the more profit you will earn.

For more information on foreign exchange trading click below.

WGP managed FX account

 

Advantages to Trading Forex

Trade 24 hours, 6 days a week
The Forex market never sleeps; it is a 24-hour continuous currency exchange that almost never closes. A currency trader can access the market according to his or her own schedule: morning, noon, or night. The market is open from Sunday 4 p.m. through Friday 5 p.m. Eastern Time.

Liquidity
With more than $2.9 trillion changing hands daily, the Forex market is extremely liquid. From your computer at home, you can open/close your buy/sell position(s). Somewhere in the world, there are always buyers and sellers actively trading foreign currencies. You are never "stuck" in a position. Today's technology offers clients with various risk management options such as stop loss orders as well as limits.

Leverage with Low Margin
In the Forex market, highly leveraged trading permits currency traders to succeed and at the same time keep risk capital to a minimum. A small margin deposit will allow traders to control a large total contract value. For instance, an investor with $1,000 in his/her account can trade up 100 times the value - $100,000. Traders will need to determine the best leverage for themselves. Without proper risk management, a high degree of leverage can lead to large losses as well as gains.

Trade in Rising & Falling Market
Currency trading is carried out in pairs; this allows traders to trade during both the rise and fall of individual currencies. When you buy/sell a particular currency, you actually simultaneously sell/buy the other currency in that particular currency pair. Then when the market moves, one of the currencies will increase in value relative to the other. The volatility of the market creates many opportunities for traders to capture profits through exchange rates, yet, you should be aware of the possibility that you could sustain a loss of some or all of your initial investment exists.

Zero or Very Low Commission Fees
For all the major currency pairs, the spread is usually around 2-5 pips. The spread will vary depending on market condition, currency pair and the brokerage you select. The trader's retail transaction cost is the bid/ask spread, Some brokers such FXCM do not charge commissions fees at all.

No One Can Corner the Market
Being the largest financial market, no single entity will be able to control the market price for an extended period of time. Even the interventions by the central banks are becoming increasingly ineffectual and short lived.

Forex VS Stocks

Forex Trading is Simpler
The Forex market consists of only seven major currencies, U.S. Dollar (USD), Euro (EUR), British Pound (GPB), Swiss Franc (CHF), Japanese Yen (JPY), Canadian Dollar (CAD) and the Australian Dollar (AUD). This allows a trader to focus on which currencies to trade. Most currency traders reside in one of the seven major currency nations giving them the added benefit of understanding the factors that impact a currency. Currencies are always traded in pairs and are normally traded against the USD. In the equities market, there are over 40,000 stocks to choose from. Which stocks do you choose?

Forex Trading Provides the Opportunity to Trade Regardless of Market Direction
In the stock market, most investors make money when the price of a stock is "up" or rising. But when stock prices are "down" or dropping (a bear market) there is little chance for the retail investor to make serious money.

One of the most exciting advantages of FX trading is the ability to trade whether a currency pair is 'up' or 'down'. We believe that a trader has an opportunity to trade when buying the currency pair (going long) at one price and selling it later at a higher price Conversely, he or she can 'short' a currency by selling the currency pair and buying it back later at a lower price. In either case, we think there is always a good market trading opportunity for a trader.

For example:

- If you think the Euro (EUR) will increase in value versus the US Dollar (USD), then you will buy Euros and sell the US Dollar. You will be "long" on the EUR/USD pair. (Since the EUR is in the first position of the pair, it is our base currency for this trade)
- If you think the US Dollar (USD) will increase in value against the Euro (EUR) then you will sell Euros and buy Dollars. You will be "short" on the EUR/USD pair.

The most noticeable advantage is that the Forex market has a tendency to be in continuous motion resulting in numerous trading opportunities. As long as the trader picks the right direction, trading opportunities always exist. Keep in mind that the possibility of losing partial or your entire investment still exists.

Here are some of the clear advantages of the Forex market over equities:

Advantages
Forex Market
Stock Market
     
Open 24 hours, 6 days a week
Yes
No
Zero or Very low commission fee
Yes
No
High Liquidity enables you to get in and out of the market easily
Yes
No
Able to trade whether the market is up or down
Yes
No
Increased leverage
Yes
No
No one can corner the market
Yes
No

Forex Provides More Leverage
The Forex market allows traders to place trades with larger leverage than in most futures contracts. And, as a bonus, you can actually specify the degree of leverage that you want to use while trading. With Forex, you are able to trade with up to 400:1 leverage. In futures, there is one margin rate for day traders and another for overnight positions, and these rates vary depending on the size of the transaction. With Forex, you are able to access the same margin rate daytime or nighttime. Please remember, leverage is a double edge sword and without proper risk management it can lead to large losses as well as gains.

Forex Provides Less Liability
Traders must have position limits for the purpose of risk management. This amount is set relative to the money in a trader's account. Risk is minimized in the spot FX market because the online capabilities of the trading platform will automatically generate a margin call if the required margin amount exceeds the available trading capital in your account. Some or all open positions will be closed, regardless of the size or the nature of positions held within the account. In the futures market, your position may be liquidated at a loss, and you will be liable for any resulting deficit in the account. When the funds in a Forex trading account drop below margin requirements, any open positions will be closed in order to protect the account from catastrophic losses. If your strategy proves to be wrong and there is a significant move against you, your liability will never exceed the value in your account.

Forex Provides Maximum Liquidity
The Forex market is the largest and the most liquid market in the world, with the spot foreign exchange market accounting for an average of US $2.9 trillion in transactions daily. The foreign exchange market can absorb transaction sizes and trading volumes that would overwhelm the capacity of other markets. The FCM will make best efforts to fill your trade at the price requested.

Forex Trades 24 Hours a Day
Forex trading is your entrance to the world economy. Trading starts on Sunday, 5:00 PM Eastern Time, with the opening of the markets in Singapore and Sidney. Several hours later, the Tokyo market opens. Next is London, which is open at 2:00 AM Eastern Time on Monday. By the time the day begins in New York, the world currency markets have been working for fifteen hours. You determine the time of your trades, reacting instantly to any news or market pressures.

Forex offers Streaming Pricing and Rapid Execution
The FX market offers rapid execution. Your trading is based on real time streaming currency prices, as brokerage firms will make best efforts to fill your trade at the price requested even in fast moving markets.

Forex Enables Automatic Rollovers
Forex enables open positions to be rolled over automatically for open positions that are kept past 5:00PM Eastern Standard Time. Your account automatically rolls over any open positions, swapping the trade forward to a settlement date two business days in the future. Rolling over a position includes some carrying costs, which is also true with futures.

Rolling over a Forex position can sometimes give you an opportunity to earn interest, as carrying cost is determined by the difference between interest rates for the two currencies. Nevertheless, you can end up paying interest when rolling over a forex position. If you are long in the currency pair with the higher interest rate you can receive interest. Conversely, if you are long in the currency with the lower rate you will pay interest. Gains and losses are ascertained by the differential between the interest rates of the two currencies and it can fluctuate daily.