Forex Trading

What is the FX market?
The online trading environment for foreign exchange encompasses the largest, most dynamic capital market in the world with more than $1.5 trillion traded daily. The FX market is a continuous, 24/5 marketplace open from Sunday afternoon (4 PM EDT) through the close of the US markets on Friday (5 PM EDT). The FX market is where investors can trade one currency against another currency.

Today, any person or company can trade Forex online. With only a computer and capital, today's investor can trade this dynamic market from the office or home. To get started, you can sign up for our live, free Demo account to test your Forex trading strategies under real market conditions Our Forex demo will be a fully functional version of the real forex trading software. You will start out with a fictitious $50,000 account and will have the opportunity to test your forex trading skills in the forex market or to learn how to trade with an actual trading system.
We are here to facilitate your access to this dynamic Forex marketplace. If you are a beginner or an experienced trader, please review our site and try our demo(s) of our platform, look at our free offers, and educational programs that available. If you are a professional or beginner, one of our broker and forex specialists will be glad to assist you.

Quoting Conventions
As with all financial products, FX quotes include a ‘bid’ and ‘offer’. The ‘bid’ is the price at which a dealer is willing to buy (and clients can sell) the base currency for the counter currency. The ‘ask’ is the price at which dealers will sell (and clients can buy) the base currency for the counter currency.
The US dollar is the centerpiece of the Forex market and is normally considered the ‘base’ currency for quotes. In the “Majors”, this includes USD/JPY, USD/CHF and USD/CAD. For these currencies and many others, quotes are expressed as a unit of $1 USD per the other currency quoted in the pair. The exceptions to USD-based quoting include the Euro, British pound (also called Sterling), and Australian dollar. These currencies are quoted as dollars per foreign currency as opposed to foreign currencies per dollar.

What is a currency cross?
Currencies are always priced in pairs. All trades take place between two different currencies resulting in the concurrent purchase of one currency and sale of another. For example, when you trade EUR/USD, the currency cross is Euros versus US dollars. One currency will be bought (long position) while the other currency is sold (short position).

What is the Bid-Ask Spread?
The bid-ask spread is the buying and selling spread between two currencies. The bid price is the price at which the currency is sold. The ask price is the price at which the currency is bought. The difference between the bid price and the ask price is known as the bid-ask spread. The bid-ask spread differs between currency crosses with more common crosses (majors) having tighter spreads.

Defining a Pip
Currencies are quoted using 5 significant digits. The last digit, called a “pip”, represents the smallest potential move in an exchange rate, and is very similar to ticks or points in other financial products. In the example below, a 10 pip increase in the Ask price would result in a quote of 1.2287. Likewise, a 10 pip decrease in the Ask price would result in a quote of 1.2267. Half-pips are a more recent development offering traders even tighter spreads and more competitive and transparent accuracy in pricing. When trading foreign exchange, the value of a pip is dependent on two variables – the amount of currency and the currency pair.

USD Value of a Pip
Below, we have calculated the US Dollar value of a 1 pip movement for some of the more frequently traded currency pairs. Please note, all values are calculated using 100,000 units of the base currency (the left-hand currency in the pair).

FX Trade Example
To illustrate a typical FX trade, consider the following example.
The current bid/ask price for USD/CHF is 1.4622/1.5627, meaning you can buy $1 US for 1.4627 Swiss Francs.

Suppose you decide that the US Dollar (USD) is undervalued against the Swiss Franc (CHF). To execute this strategy, you would buy Dollars (simultaneously selling Francs), and then wait for the exchange rate to rise.

So you make the trade: purchasing US$100,000 and selling 146,270 Francs. (Remember, at 2% margin, your initial margin deposit would be $2,000.)

As you expected, USD/CHF rises to 1.4835/40. You can now sell $1 US for 1.4835 Francs or buy $1 US for 1.4840 Francs. Since you bought Dollars and sold Francs in your previous trade, you must now sell Dollars for Francs to realize any profit. If you sell US$100,000 at the current USD/CHF rate of 1.4835, you will receive 148,350 CHF.

Since you originally sold (paid) 146,270 CHF, your profit is 2080 CHF. To calculate Dollar-based P&L, simply divide 2080 by the current USD/CHF rate of 1.4840.

Total profit = US $1313.13 What happens if there is a loss?
Instead of the USD/CHF gaining, it loses 2080 CHF. Instead of a gain , a loss of $ 1313.13 is incurred.

Factors affecting the market
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 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.

Fundamental vs. Technical Analysis
Currency traders make decisions using both technical factors and economic fundamentals. Technical traders use charts, trend lines, support and resistance levels, and numerous patterns and mathematical analyses to identify trading opportunities. Fundamentalists predict price movements by interpreting a wide variety of economic information, including news, government-issued indicators and reports, and even rumor.
The most dramatic price movements however, occur when unexpected events happen. The event can range from a Central Bank raising domestic interest rates to the outcome of a political election or even an act of war. Nonetheless, more often it is the expectations surrounding an event that drives the market rather than the event itself.

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