FAQs: Foreign Exchange Trading
Q: What is Foreign Exchange?
A:
The Foreign Exchange market, is also referred to as the "FOREX" or "Forex" or "Retail forex" or "FX". Visit What is Forex for more information.
Please Note: In the off-exchange, also called the over-the-counter market, a retail customer trades directly with a counterparty and there is no exchange or central clearing house to support the transaction.
Q: When is the Forex market open for trading?
A:
Forex is truly a 24-hour market. No matter what the time of day, a financial center is operating somewhere in the world.
In other financial markets, there is generally a time lag between an event and when a trader can respond to it. With Forex trading, however, investors can respond immediately to currency fluctuations that are caused by political, social or economic world events, day or night. FX Solutions has trading hours round the clock from 17:15 Eastern Time Sunday until 16:30 Eastern Time Friday.
Q: What are the most commonly traded currencies in the Forex market?
A:
The most heavily traded currency is the US Dollar, which is on one side of 86.3% of transactions worldwide. The Euro is the second most heavily traded at 37%, while the Yen is involved in 16.5% of trades.
The eight most popular currencies, together with their symbols, are as follows:
Symbol Currency
USD - United States Dollar
EUR - Euro Members Euro
JPY - Japan Yen
GBP - Great Britain Pound
CHF - Switzerland Franc
CAD - Canada Dollar
AUD - Australia Dollar
NZD - New Zealand Dollar
Q: How are Forex, Spot Metal and CFD prices determined?
A:
Bid/Ask prices fluctuate with social, political, and economic world events. Changes in interest rates, inflation, and instances of political instability are just some of the possible causes. FX Solutions leverages its proprietary interbank market price feed for price discovery and risk exposure, using advanced algorithms to react to changes in the marketplace in milliseconds. This permits us to maintain fixed spreads, so that during normal market conditions our trading customers always know the transaction costs they will be paying.
Q: What is margin?
A:
Margin is the collateral for a position. Margin allows traders to take a loan or "leverage" their positions with just a fraction of the equity required to fund the trade. Important note: higher margins can significantly increase your risk.
Q: What does it mean to have a "long" or "short" position?
A:
In a "long" position, a trader has purchased an instrument at a certain price, planning to sell it later at a higher one. Using this strategy, traders benefit when there is a rise in the market. In a "short" position, a trader has sold an instrument, in the expectation that its price will decline. Using this strategy, traders gain because the price of the instrument has declined.
Q: What do terms like "bid/ask," "spread," and "rollover" mean?
Q: What is the difference between an "intraday" and "overnight" position?
A:
Intraday positions are positions that have been opened at some time during a particular 24-hour period, and then closed by the close of that trading day (at 17:00 Eastern Time). An overnight position is one that stays open past the end of normal trading hours (17:00 Eastern Time). FX Solutions automatically rolls clients' overnight positions over to the next day's price, at competitive rates.
Q: What happens to my open positions at the end of the trading day?
A:
Trades that are held open at the end of the trading day (17:00 Eastern Time) do remain open, but they are subject to a daily "cost-of-carry" adjustment as per standard interbank market protocol. This adjustment is calculated from the interest rate differential between the two currencies in the trade, and on the movement of spot value dates.
A trader who is long (has bought) the currency bearing the higher interest rate will generally receive a credit to their account at 17:00 Eastern Time. If they are short (have sold) the higher yielding currency, their account will be debited.
Q: How do I manage risk?
A:
Traders must establish position limits in order to manage risk. Position limits are set relative to the amount of money in your trading account. With FX Solutions, your risk is minimized because our GTS trading platform automatically generates a margin call when your equity dips under the margin needed to maintain all of your existing positions. When this occurs, all your open positions are immediately closed, no matter what the nature or size of the positions held within your account.