Foreign Currency Trading Questions

What is "foreign exchange"?

Foreign Exchange, also known as "Forex" or "FX", constitutes the largest financial market in the world, with a daily average turnover of approximately US$1.5 trillion. Foreign currency trading is the simultaneous buying of one currency and selling of another. Foreign currencies are on a floating exchange rate and are always traded in pairs; e.g., the Euro versus the Dollar or the Dollar versus the Japanese Yen.

Where is the foreign currency trading market located?

Unlike the stock and futures markets, foreign currency trading is not centralized on an exchange. The currency trading market is considered an Over the Counter (OTC) or 'Interbank' market, due to the fact that currency transactions are conducted between two parties electronically over the phone.

Who are the participants in the currency trading market?

The foreign currency trading market is called an 'Interbank' market, since it has been dominated by banks (including central banks, commercial banks, and investment banks) throughout history. On the other hand, there is a rapid growth of other market participants which now include, large multinational corporations, global money managers, registered currency dealers, international money brokers, futures and options traders, and private currency speculators.

When is the foreign currency trading market open for trading?

Foreign exchange trading is a true 24-hour market. It begins each day in Sydney, and then moves to other parts of the world as with the opening of different financial centers; first to Tokyo, then to London, and then New York. Unlike in any other financial market, currency traders can respond to foreign currency fluctuations caused by economic, social and political events at the quickly - during the day or night.

What is Margin?

Margin is collateral for a currency position. Our margin requirement is 1%. That means that with $1,000 a currency trader could trade $100,000 [please mote that to open a currency trading account with us you need to deposit at least US$2,500].

Do you perform a margin call?

No, we do not perform margin calls.

What is a "pip" in currency trading?

"PIP" stands for "price interest point" and it is the smallest increment that a particular currency pair can move. It is the last decimal of a foreign exchange rate.

How can I get familiar with currency trading terms such as "bid" and "ask"?

Check out our currency trading glossary for a definition of many forex terms. You could also read through our free currency trading education section.

What affects the prices of currencies?

Currency exchange rates are affected by a variety of economic and political factors. Some of the most important are interest rates, inflation and political condition of a country. In addition to this, foreign governments sometimes participate in the currency exchange market to influence the value of their currencies. This is accomplished by Central Bank intervention: the flooding of the market with a currency in an attempt to lower the price, or conversely, the buying of the currency in order to raise the price. Any of these factors, as well as large market orders, can cause high volatility in the prices of currencies. Nevertheless, the sheer size and volume of the foreign currency trading market makes it impossible for any one entity to control the price of a currency for a significant period of time.

What is "Tom Next" or "Roll over"?

Tom Next (Tomorrow Next Day) is the process of aligning the value dates of foreign exchange transactions and rolling a given spot position from one day into the next, while taking respective interest rates of currency crosses being traded into accordance.

How do I manage risk when I trade currencies?

The most common risk management tools in foreign currency trading are the limit order and the stop loss order. For more information read the "types of orders in currency trading" and "currency trading with a strategy" sections of our free currency trading education area.

What kind of trading strategy should I use when trading currencies?

A currency trading strategy can use technical analysis, fundamental analysis, or a combination of the two. Read the "technical vs fundamental analysis in the currency market" and the "currency trading with a strategy" sections of our free trading education area.

How active are traders when they trade currencies?

This depends on the way the market behaves on a given day and on the currency trading strategy that the trader uses. The average small to medium trader might trade as often as 10 times a day.

How long are currency positions maintained?

This depends on the currency trading strategy that a currency trader uses, but basically depends on whether a desired profit target is reached or a specified stop-loss is triggered.

I want to learn more about foreign currency trading. What do I do?

The currency trading education section of the Currency Trading USA website has a a lot of free information about the currency trading market. To practice trading currencies you could also register for a 30-day trial of our top-of-the-line currency trading demo. If you want to take advantage of free, live currency trading course, all you have to do is open a trading account with us with US$50,0000 or more. Please note that free training is not available for demo accounts, only for actual funded accounts. If you cannot open an account with $50,000 or more, you can still receive our practical trading e-book when you open a forex mini account with $250 or more.

To sign up for a live 30-day free currency trading demo, click here...