Forex Market FAQ
- Is the forex market fair?
- Does the forex market have a central clearing house or central location?
- Who participates in forex trading?
- Which currencies are the most commonly traded?
- How do I trade forex over the Internet?
- What’s the spread and why is it important?
- What’s a swap rate and does it make or cost me money?
- What is margin and how do I calculate how much I need?
- Can I get a margin call if I have no free margin?
- How do I make a profit in forex?
- What does it mean to have a ‘long’ or ‘short’ position?
- What factors affect the price of currencies?
- What’s the best way to manage risk when trading currencies?
- What kind of trading strategy should I use?
- I’m interested in forex trading. How can I learn more?
1. Is the forex market fair?
The huge scale of the forex market means it is much harder to manipulate than other markets. Even central banks can’t completely control the market direction of any currency. The market can respond sharply to central bank interventions or economic news, but major manipulations are not possible, even for big players like banks.
2. Does the forex market have a central clearing house or central location?
No. Unlike the stock market, the forex market is not centralized. It’s an over-the-counter (OTC) market distributed all over the world, operating 24 hours a day, 5 days a week.
3. Who participates in forex trading?
Traditionally, banks have been the key players on the forex market. However, thanks to accessible Internet trading, participation is increasing rapidly among other market groups, institutions, and individuals. Multinational corporations, hedge funds, international money brokers, futures and options traders, and private speculators all engage in forex speculation and hedging.
4. Which currencies are the most commonly traded?
The US Dollar, Japanese Yen, Euro, British Pound, Swiss Franc, Canadian Dollar and the Australian Dollar are the most commonly traded currencies, accounting for 85% of daily transactions on the forex market. The most commonly traded currency pair is the Euro and the US Dollar.
5. How do I trade forex over the Internet?
Executing trades is easy. Just download and install one of our trading platforms and log in to your account. Then:
1. Open a trade by clicking the “New Order” button in the Trading Terminal.
2. Enter your selected trading volume.
3. Click on the bid (sell) or offer (buy) button to execute the trade.
The platform will calculate your margin requirement and the deal will be instantly confirmed online, as long as your account contains sufficient funds. The open order will be displayed in your trading terminal and updated automatically as market conditions change.
Get a demo account first if this is something you haven’t tried before.
6. What’s the spread and why is it important?
The spread is the difference between the bidding price and the asking price for each currency. If you buy at market you get the ask price. If you sell at market, you get the bid price. “Maxrich Group LTD” has tight spreads (the distance between the bid/ask price is small). This helps you make money faster because even a minimal price movement can result in profit.
Our normal dealing spreads are between 1 and 3 pips (price interest points – the smallest movement a currency pair can make) for the major currency pairs.
7. What’s a swap rate and does it make or cost me money?
A forex swap rate is the interest calculated for all the positions you hold overnight, through “Maxrich Group LTD”‘s rollover period.
To determine the swap rate, the interest rate of each currency is calculated. If you’re long a currency, you receive that rate. If you’re short a currency, you pay that rate. Because there are two currencies in each currency pair, and you’re simultaneously long one and short the other, you’ll pay or receive the net difference.
Daily swap charges are posted by financial institutions and are subject to change based on market conditions. Each currency pair has its own rate and is measured on a standard size of 1 lot (100,000 base units).
For the latest Swap rates please see the “Maxrich Group LTD” MT4 Trading Platform. View the rates with the following simple steps:
1) Select View > Market Watch
2) Right-click on Market Watch and select Symbols
3) Choose the currency pair you want and select Properties
8. What is margin and how do I calculate how much I need?
Margin is the amount of money your account must hold to open (and maintain) a trade. Margin is calculated based on the current price of your chosen currency pair, the size of the trade you want to make, and the leverage you selected when you opened your account.
The dealing software won’t allow you to open a position if you don’t have enough free margin available. Your free margin is indicated in the terminal of each of our trading platforms.
To calculate the margin requirement yourself, use: (Market Quote * Volume) / Leverage = $ Margin required.
For example, to open 1 standard lot (100,000 base currency) of EUR/USD at 1.2350 with a 1:200 leverage level = (1.2350 * 100,000) / 200 = $617.50. That’s the free margin you must have in your account to execute the trade.
9. Can I get a margin call if I have no free margin?
No. Your free margin can become a negative figure because your trades will stay open until your available equity level (indicated in the trading platform) falls to 20% or less of the required margin to open those trades. In the example just above, the trade opened with a margin requirement of $121.75 would be subject to a margin call if the account equity falls to $123.50 or less.
10. How do I make a profit in forex?
As with any other market, you make money by buying low and selling high. If you’re short, you have to sell it high and cover the short low. Unlike stocks, going long or short is equally easy in forex, and the margin requirements are exactly the same.
For example, imagine you’re expecting the USD to rise against the EUR (or the EUR to fall against the USD, which is the same thing). To act on this prediction, you have a $5,000 account with 1:100 leverage (your buying power is therefore $500,000).
You decide to sell 5 mini-lots (50,000 in base currency at $5 per pip) of the EUR/USD pair at the market price of 1.2350. To protect your capital, you need to decide a stop loss (we’ll use 5% of your account in this example). So you set your stop loss order at 1.2400 (50 pips or $250 risk). Just 4 days later the EUR/USD quote is 1.2200 and you decide to close your short position on the EUR. Your profit in pips is 1.2350 – 1.2200 = 150 pips. Since you chose to trade 5 mini-lots at $5/pip value, you made a profit of $750 on this trade while risking $250.
11. What does it mean have a ‘long’ or ‘short’ position?
You hold a long position when you are buying a currency, and a short position when you are selling. For example, using the most common pair, EUR/USD: if you’re buying the Euro, you’re long the Euro and short the US Dollar; and if you’re selling the Euro, you’re short the Euro and long the US Dollar. Since currencies are paired, you are simultaneously long one currency and short another.
12. What factors affect the price of currencies?
Inflation, political instability, central bank interventions, and other national and international economic and political events are all factors that can affect currency prices.
However, thanks to the size of the forex market, even the effect of central bank interventions is limited. No single entity can drive the market for long, but countries perceived as having strong, growing economies will see their currency value appreciate, while countries with poor economic outlook will see the opposite.
13. What’s the best way to manage risk when trading currencies?
In addition to managing the size of your trades, you can use limit orders and stop loss orders to minimize your risk. A limit order restricts the maximum price to be paid or the minimum price to be received, thus ensuring you get filled close to your target price. A stop loss order limits losses by setting a position for automatic liquidation.
14. What kind of trading strategy should I use?
Your trading strategy is personal. However, it is generally a good idea to make decisions incorporating both technical and economic factors.
Technical trading strategies include charts featuring oscillators, trend lines, support & resistance levels, and other patterns and mathematical analyses.
Price movements can also be predicted by interpreting news, government indicators and reports, and a variety of unexpected events including election results, rising interest rates, and natural disasters.
15. I’m interested in forex trading. How can I learn more?
You can take forex trading courses online, but we think the best way to learn is through experience. A forex demo account allows you to learn how to trade in an authentic trading environment, without risking real financial losses. Open a standard demo account with “Maxrich Group LTD” here or by clicking on one of the “Open Demo Account” buttons anywhere on the site and filling out the registration form.