Benefits of Trading the
Foreign Exchange Market
The Foreign exchange market otherwise known as “Forex” or “FX” is the world’s largest financial market with over 3.5 trillion USD traded daily.
There are three main reasons why businesses or individuals choose to participate in the FX market:
- To facilitate a transaction whereby payments are made for the export of goods or services by converting foreign currencies into their domestic currencies or the purchase of imported goods or services by exchanging local currency to purchase foreign currency.
- To remove unwanted risk of adverse exchange movements by hedging forward dated payments or receipts in the currency markets.
- To speculate for profit. It is estimated that more than 80% of all FX trading is speculative in nature.
Advantages of Trading Forex:
- Ability to trade on margin. Access to the FX market can be made using small capital outlays. Trade on margin with as little as 1% deposit.
- Trade long (open purchase) and short (open sale) positions.
- 24-hour seamless trading. The FX market is open for a continual 5½ day period, from the opening of the New Zealand markets on Monday morning to the close of New York at 5pm on Friday evening. Real-time access to streaming prices is available at all times during this period (under normal market conditions).
- No delivery or contract expiry to consider.
- Benefit by trading the largest and most liquid market in the world.
The Star Financial Markets online dealing system is suitable for both technical and fundamental trading. It is flexible enough to accommodate your most demanding trading requirements over the widest range of foreign currency pairs and commodities.
FX Margin Trading and Leverage
FX Margin, trade sizes and FX leverage at a glance
- Minimum account size - $200
- Lot sizes start at 0.01
- Margin starts at 1%
- Leverage up to 400:1
Trading FX on Margin - 100:1
Put simply, margin serves as collateral to cover any losses that you might incur. Since nothing is actually being purchased or sold for delivery, the only requirement, and indeed the only real purpose for having funds in your FX account, is for sufficient margin.
Essentially when you trade on margin you are using a free short-term credit allowance from Star Financial Markets. This short-term credit allowance is used to purchase an amount of currency that greatly exceeds your account value.
Let's take the following FX
You have an account with $10,000 with Star Financial Markets. You trade ticket sizes of 1,000,000 AUD/USD. This equates to a margin ratio of 1% ($10,000 is 1% of $1,000,000). How can you trade 100 times the amount of money you have at your disposal? The answer is that Star Financial Markets temporarily gives you the necessary credit to make the transaction you are interested in making. Without margin, you would only be able to buy or sell tickets of $10,000 at a time. On standard accounts Star Financial Markets applies a minimum 1% margin.
This margin facility allows you to potentially make large profits from a relatively small initial investment but it must be pointed out that any losses are equally multiplied.
Customers who hold FX positions may become liable to pay margin as detailed in our terms and conditions. All FX positions have an initial margin and you are required to keep this over and above any unrealised losses. Margin calls can be made at any time and it is therefore important for you to familiarise yourself with our terms and conditions especially the section relating to margin calls. As a general rule, if your free margin % on the platform reaches 90%, you will officially be in ‘Margin Call’. If your positions continue to move against you, and the free margin percentage reaches 20% of your free margin, your current positions will be automatically closed to avoid a situation where your account balance may go into deficit. Be aware that it is your responsibility, not Star Financial Markets, to monitor your positions and make any margin payments as they become due.
Monitoring Risk Exposure
Our FX trading platforms have been designed to effectively monitor and allow you to control risk exposure in real time. Based on each client’s margin requirement, the FX trading platform system calculates both the funds needed to retain current open FX positions and the trading resources available for entering into new positions or for adding to existing open FX positions.
As stated above, if the equity in your account drops below the margin required to maintain your open positions, we may close all open positions. Once usable margin reaches zero, a margin call will ensue, and all open positions may be closed by us. This limits your risk to usable margin.
Minimum Account Size - $200
Although many other brokers may offer less than $200 accounts with 400:1 leverage or more, our view is that at this level you should carefully consider whether FX trading is right for you; your trading and money management plan; and attitude to risk/reward. In this scenario we would suggest opening a practice trading (or demo) account, to better assess if Forex trading is right for you. Star Financial Markets will allow you to use an unlimited demo account (not bound by the usual 30 day expiry) if you open a live account with more than $200.