How do I manage risk?

The most common risk management tools in FX trading are the limit order and the stop loss order. A limit order places restriction on the maximum price to be paid or the minimum price to be received. A stop loss order ensures a particular position is automatically liquidated at a predetermined price in order to limit potential losses should the market move against an investor's position. The liquidity of the Forex market ensures that limit order and stop loss orders can be easily executed.

How are currency prices determined?

Currency prices are affected by a variety of economic and political conditions, most importantly interest rates, inflation and political stability. Moreover, governments sometimes participate in the Forex market to influence the value of their currencies, either by flooding the market with their domestic currency in an attempt to lower the price, or conversely buying in order to raise the price. This is known as Central Bank intervention. Any of these factors, as well as large market orders, can cause high volatility in currency prices. However, the size and volume of the Forex market makes it impossible for any one entity to "drive" the market for any length of time.

 

How long are positions maintained?

Approximately 80% of all forex trades last seven days or less, while more than 40% last fewer than two days. As a general rule, a position is kept open until one of the following occurs: 1) realization of sufficient profits from a position; 2) the specified stop-loss is triggered; 3) another position that has a better potential appears and you need these funds.

 

How often are trades made?

Market conditions dictate trading activity on any given day. As a reference, the average small to medium trader might trade as often as 10 times a day. Most importantly, because most Forex Brokers don't charge commission, traders can take positions as often as necessary without worrying about excessive transaction costs.

FOREX.com

FOREX.com is a division of GAIN Capital Group, a dedicated partner to professional FX traders and fund managers worldwide. Institutional services include IB programs, white label solutions, and asset management. Individual forex traders can take advantage of the market expertise and financial strength of GAIN Capital Group and access an institutional FX trading platform, FOREXTrader, along with our powerful real-time forex charts, professional forex market research, and suite of advanced forex trading tools. For traders new to the currency trading, FOREX.com offers forex training programs, forex minis, and information about trading the foreign currency market.

Is Forex trading expensive?

No. Most online Forex brokers allow customers to execute margin trades at up to 100:1 leverage. This means that investors can execute trades of $100,000 with an initial margin requirement of $1000. However, it is important to remember that while this type of leverage allows investors to maximize their profit potential, the potential for loss is equally great. A more pragmatic margin trade for someone new to the FX markets would be 20:1 but ultimately depends on the investor's appetite for risk.

What does it mean have a 'long' or 'short' position?

In trading parlance, a long position is one in which a trader buys a currency at one price and aims to sell it later at a higher price. In this scenario, the investor benefits from a rising market. A short position is one in which the trader sells a currency in anticipation that it will depreciate. In this scenario, the investor benefits from a declining market. However, it is important to remember that every FX position requires an investor to go long in one currency and short the other.

What is a Limit order?

A limit order is an order with restrictions on the maximum price to be paid or the minimum price to be received. As an example, if the current price of USD/YEN is 117.00/05, then a limit order to buy USD would be at a price below 117.05. (ie 116.50).

Tips for New Forex Traders

Forex has always been a magnet for investors and traders, who are looking for an exciting business venture to invest in, giving them the thrill, adventure and excitement, along with an idea of a quick and easy way to make profits. 

But, for those who are relatively new to the Forex trading world, it is extremely important to know exactly what you are getting into. When it comes to the matter of investing a huge amount of your hard earned money into something, first time investors should always make sure what they ought to expect out of it. What should and should not be done. What steps should be taken to play safe and what to do that keeps them at away from the frauds and scams. 

First of all what needs to be learnt is, what is Forex and how does it work? What need’s to be known next are a few important trading tips, which will facilitate you during your transactions. 

Foreign Exchange or Forex or FX is one of the biggest money market in the world, and is a platform where currency is sold and bought freely between buyers and sellers. Forex, unlike any other financial markets, has no physical location or central exchange. 

With over $1.5 trillion USD being traded daily, the foreign exchange market has now become a market which is open to trading by an average investor as much as it is open to a high investor. 

Launched over three decades back, in the early seventies, Market Forex introduced free exchange rates worldwide, according to which, the price of the currencies was determined on the basis of demand and supply only. 

A number of reasons are responsible for making Forex a distinctive financial market. To begin with, no external regulatory authority is allowed to set or fix currency prices or rates in this market, making Forex is market which cannot be controlled in any way. Also, it is one of those few money markets that necessitate very little trading education, training and experience. 

In order to know the Forex market well, the new traders should know how to start trading Forex. The few important things to be kept in mind when beginning to trade Forex are as follows: 

What needs to be done firstly is, to open a Forex account. This can be done by filling up an application form, providing the required essential credentials, like personal details, financial particulars, and other details such as whether or not, a broker will be allowed to mediate with any trade if it appears to get too precarious and dicey. 

Once your account has been created and recognized, you can begin to flow cash in to it and start trading Forex. 

New Forex traders are always advised to create two accounts while trading, one of them being a real account, while the other being a demo one. A real account will facilitate the trader to actually trade in the market, with real money. 

The demo account helps the new investor learn more about the trading business. This way the new trader can practice his moves of trading in the market, without the fear of losing all his money in case he/ she goofs up or ends up making the wrong deal. 

Also, before you start trading in the market, you should have a closer look at all the top five foreign currencies and their current rates to make sure, you are aware of the current rates and are not missing anything. 

The top five Forex currencies are: Pound/USD, Swiss franc/USD, Euro/Yen, USD/Yen and Euro/USD. 

Always keep a check on the market. With the time intervals on hourly, daily and weekly schedules with all the currencies that are in any way related to your trade. 

Being a successful trader requires to come up with individual and unique trading strategies. There is no “Golden Mantra” or “Trade Secret”, which will work for the traders. 

Every investor needs to come up with their own, personal and distinctive trading approach when it comes to the market. There are different ways by which, the traders approach the market. Sometimes they may bank solely on industrial and technical analysis. 

Some may like better to go in for a more elementary and basic approach for trading, while others may make use of the past records of the market, combined with both technical as well as fundamental techniques for trading. 

All these strategies help the traders in studying the patterns of currency price trends and movements, making it easier for them to foresee the course of the potential developments in the Forex market. 

Currency prices in Forex market mostly move in trends. They have a pattern, through which, certain movements can be studied. Some of these movements which have been studied over several years mostly help in discovering that pattern in the market trend. These trends are what should be recognized and valued properly, to facilitate the creation of an excellent trading strategy. 

Any factors, financial or political, having some control over the value or the price of a currency, have already been measured by the market to be included as an important factor in creating a price trend. 

When trading for the first time, it is always advisable to invest by the trends. Trading with a trend can facilitate you by advancing your chances with profit. Many new investors are enthusiastic to start trading as soon as they can, eventually ending up trading in any direction. 

Trading by a trend or following a pattern and studying the market can increase your odds of being favored by the market, making your trading prospects high.

Money made trading currencies

  Currencies are traded on a point or pip system. A pip is another word for a point in the currency trading arena. Traders are trying to capture points. Depending on the currency, each point is worth a different amount. For example; the British Pound is worth about $10 per point that is traded per lot. If you trade 1 lot and capture 40 points, you just made $400. If you trade 10 lots and capture 40 points, you just made $4,000.00, etc. 

Futures and FOREX?

Currencies are the money that represent the monetary system from different countries. For example; the Japanese Yen, Canadian dollar, Brazilian Real, Swiss Franc, etc. Futures trading of currencies is done in trading pits, where you are trading those currencies today, but for future prices. FOREX trading is trading actual currencies at today's exchange rate with banks. All trades are done through brokers or market makers.

What is a margin account?

Margin account is a bond account. It is like a savings account. Before you can trade, you need to place a certain amount of money in what is called a margin account. You are guaranteeing other traders that you can pay them if you lose. That account is overseen by your broker. He monitors your account when you trade. He usually will not allow you to risk more than what is in your margin account. The margin account exists so, as you win on a daily basis, they have a place to deposit your money. Conversely, when you lose, they have an account to withdraw the money.