General FAQs about the Forex Market

What is the “Foreign Exchange,” or “Forex” or “FX” for short? This is the largest financial market in the world. Its daily average turnover is approximately US$1.5 trillion. Foreign Exchange trading simply means the simultaneous buying of one currency, and selling of another. The world's currencies are on a floating exchange rate. They are always traded in pairs – for example, Dollar/Yen, Euro/Dollar, etc. ^ Back to Top

Is there a “central location” for this market? No. Unlike stock and futures markets, FX trading is not centralized on any one exchange. It is considered to be an Over-the-Counter (OTC), or 'Inter-bank,' market. This is because transactions are conducted between two counterparts over the telephone, or via an electronic network. ^ Back to Top

Who are the “participants” in this market? 'Inter-bank market' means that it was dominated by banks up until recently – i.e., central banks, commercial banks, investment banks, etc. However, thanks to market makers brokers, other market players then entered the market in record numbers. They include international money brokers, large multinational corporations, registered dealers, global money managers, private speculators, and futures and options traders. ^ Back to Top

When is this “market open” for trading? This is a true seamless 24-hour, seven-day-a-week, market. Trading begins each day in Sydney, and then moves around the world, as each financial center opens up – Tokyo, London, and then New York – in that order. The big advantage to trading the forex market is that traders like you and I can respond to currency fluctuations caused by economic, political or social events as they unfold – day or night. This is much unlike other financial markets, as you well know. ^ Back to Top

Which “currencies” should I trade in this market? The most commonly traded are those that are 'liquid' – i.e., those of countries with stable governments, low inflation, and respected central banks. Over 85% of all trading activity revolves around the major currencies – i.e., the Australian Dollar, British Pound, Canadian Dollar, Euro, Japanese Yen, Swiss Franc, and the U.S. Dollar. ^ Back to Top

Do I need a lot of “money” to trade this market? No. One market maker broker we know of requires a minimum deposit of $500, although it is preferable that you start with at least US$2,000 to US$5,000 in your trading account. You can execute margin trades with up to 200:1 leverage, and you can also execute trades of $10,000 with an initial margin requirement of $50, in some cases.

However, it is important to note that, while such leverage allows you to maximize your profit potential, the potential for loss exists too. A more pragmatic margin trade for you, if you are new to the FX markets, might be in the order of 20:1, but this ultimately depends on your appetite for risk. The most common ratio is 100:1 for a standard account, and that’s what we recommend when you open your account. Of course, you can start with a mini account, and upgrade from there.

Concerning risk, our trading method has a 70% success rate, so you will not be “flying blind,” as most traders do. We are here to help you get on the winning side of most of your trades with our revolutionary Pivots Program that has captured the Forex market by storm.

Don’t forget that you can open a demo account with most market maker brokers that we deal with. This requires no capital outlay, and is risk-free.

We would be more than glad to recommend a market maker broker to you that would suit your needs. We have thoroughly researched the offerings that are available out there, and have come up with those that we are prepared to suggest you use. ^ Back to Top

What is “margin?” Margin is just that – collateral for a position. Your market maker broker will request additional funds by way of a "margin call," if the market moves against your position. It will immediately close out your open positions, if there are insufficient funds in your account. ^ Back to Top

What are “long” or “short” positions? A long position is one in which you buy a currency at one price, with the expectation of selling it later on at a higher price. Obviously, you anticipate that the market will rise. A short position is one in which you sell a currency with the expectation of buying it back at a lower price. Here, you expect the market to fall. Every FX position you take automatically entails going long in one currency, and short the other. If you buy one, by default you are shorting the other. ^ Back to Top

What is the difference between “intraday” and “overnight” positions? Intraday positions are those positions you would take during the 24-hour period, after the market maker broker’s normal trading hours open, but not hold after the close. Overnight positions are those of your positions that are still on at the end of normal trading hours. Your market maker broker rolls over your positions at competitive rates (based on the currencies’ interest rate differentials) to the next day's price. ^ Back to Top

What “drives” currency prices? Currency prices are affected by a variety of economic and political conditions – most importantly inflation, interest rates, large market orders, and political climate. Furthermore, governments sometimes enter the Forex market to influence the value of their currencies, either by flooding the market with their domestic currency to lower its price, or conversely by buying it to give it a boost. This is commonly called “central bank intervention.” Any of these factors can cause volatile currency prices. However, the sheer size and volume of the Forex market makes it virtually impossible for any one entity to "influence" the market for any length of time.
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How should I “manage risk?” The most common risk management tools in Forex trading are the limit and stop loss orders. A limit order restricts the maximum price to be paid, or the minimum price to be received. A stop loss order ensures that your position is automatically liquidated at a predetermined price, should the market move against you. Limit order and stop loss orders can easily be executed due to the huge liquidity of the Forex market. ^ Back to Top

What “trading strategy” should I use? You could identify good trading opportunities, and execute your trades based on economic fundamentals and/or technical factors. These factors typically include charts, mathematical analyses, support and resistance levels, and trend lines, but we have our own view on these technical considerations, as you will see in a minute.

Fundamentalists anticipate price movements by analyzing and interpreting a wide variety of economic information, including government-issued indicators, news, rumors, and reports. However, unexpected events instigate the most dramatic price movements. Such events can include a central bank raising domestic interest rates, the outcome of a political election, or even an act of war. Nonetheless, it is usually the expectation of the event that drives the market, rather than the event itself.

From a purely technical perspective, there are many approaches to identifying buy/sell levels for a tradable, but a great number of them are unreliable. Those approaches include methodologies that utilize Fibonacci numbers and ratios, Gann concepts, moving averages, and trend lines. They all have a very static view of the tradable. They assume that the market will repeat past behavior and experience, and can therefore be viewed linearly. They also use fixed intervals for inputs, which creates yet another dilemma.

The old maxim: “A study of the past does not tell you anything about the future.” The exception here is our interest in the previous week’s levels, and those of the trading session just past.

Watching price action without having something to go by will leave you directionless. You should watch prices in relation to points-of-reference (a pivot point in combination with buy/sell levels). It is perhaps the only way of knowing whether the market is moving closer to, or further away, from a particular point. It also helps you develop a feel for the market, once you put your position on. Your entry price will take on a whole new meaning, as you track it in relation to these points-of-reference.

When watching price action, you will want to know three things: in what direction, how far, and how fast. To do this measurement, you will need only observe current price in relation to what we call the pivot point.

Our Pivots Program generates all the buy/sell signals for you automatically. All you have to do is pull the trigger, and relax, when you combine these entry/exit points with other indications, like significant bars (key reversal bars, inside bars, outside bars, price rejection bars, railway tracks, etc.), MACD negative or positive divergence to price action, trend line breakouts, etc.
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How “often” should I trade? Market conditions will dictate your trading activity on any given day. The average small-to-medium trader could conceivably trade up to 10 times a day. However, because there are no commissions when you trade currencies on the Forex, you can take long or short positions as often as you like, without worrying about excessive transaction costs. ^ Back to Top

I like what I hear and see so far about foreign exchange trading, but I am still “nervous” about getting involved. How can I “overcome my fears?” There is no better way for you to get practical experience in this market than for you to open a demo account with a market maker broker that we would recommend to you. That way, you will get a feel for what it’s like to trade the Forex market, without actually risking any of your hard-earned capital. ^ Back to Top

What is the “spot rate,” and what is the “spot market?” What “exchange” does it trade on? In your daily newspaper, you will find quotations for the forward rate, options, and the spot rate on currencies. The spot rate means that currencies can be exchanged for delivery in two days – i.e., on the spot. The word market is misleading, in that there is no central location where trading currencies takes place. The bulk of Forex trading is conducted between approximately 300 large international banks, which process transactions for large companies and governments. These institutions continuously provide prices for each other, and their corporate and institutional clients. Forex trading is not bound to any one trading floor, but takes place electronically within a network of banks continuously over a 24-hour period. ^ Back to Top

What do the terms “bid/ask” and “spread” mean? Bid is the highest price that the seller is offering for a particular currency at the moment; ask is the lowest price acceptable to the buyer. Together, the two prices constitute a quotation; the difference between the two is called the spread. ^ Back to Top

What is “price shifting?” Price shifting is the practice of offering a client a buy or sell price that does not reflect where the market is actually trading. The shift is always to the advantage of the broker, and the purpose is obvious. The practice is common and, unfortunately, legal. ^ Back to Top