Forex is the conversion of one country's currency into that of another.The value of one country’s currency is constantly changing against the value of another country’s currency. In other words, the world’s currencies are on a floating exchange rate and always traded in pairs. For example Euro/Dollar.
At first glance, this ad-hoc arrangement must seem bewildering to investors who are used to structured exchanges. However, this arrangement works exceedingly well in practice, because participants in FX must both compete and cooperate with each other, self regulation provides very effective control over the market. Furthermore, reputable retail FX dealers in the United States become members of the National Futures Association (NFA), and by doing so they agree to binding arbitration in the event of any dispute. Therefore, it is critical that any retail customer who contemplates trading currencies do so only through an NFA member firm. In the UK, brokers are regulated by the FCA, the Financial Conduct Authority.
Before we leave you with the impression that FX is the Wild West of finance, we should note that this is the most liquid and fluid market in the world. It trades 24 hours a day, and it rarely has any gaps in price. Its sheer size and scope (from Asia to Europe to North America) makes the currency market the most accessible market in the world.
Once your account has been opened, you will receive an email from the broker with instructions for logging in, as well as instructions on how to fund your account. Once your account has been funded, we will receive a signal from the broker and trades will start to get copied on your account. The first trade will start when market conditions are optimal.
In the foreign exchange market, currency is traded in pairs. Pairs have meaning in relation to each other so must always stay together.
In a currency pair, the first currency is called the “base currency”; the second currency is called the “quote currency” or “counter currency”. The majority of the trading volume in the FX market is represented by these 18 pairs:
The four majors:
- EUR/USD (euro/dollar)
- USD/JPY (dollar/Japanese yen)
- GBP/USD (British pound/dollar)
- USD/CHF (dollar/Swiss franc)
- AUD/USD (Australian dollar/dollar)
- USD/CAD (dollar/Canadian dollar)
- NZD/USD (New Zealand dollar/dollar)
Also known as ‘margin’. The required collateral that an investor must deposit to hold a position.
Also known as ‘leverage’. The required collateral that an investor must deposit to hold a position.
A request from a broker or dealer for additional funds or other collateral on a position that has moved against the customer.