Frequently Asked Questions
Click on questions to see answers
| 1. Some people call the FX market the market that never sleeps. What are the advantages and disadvantages of a 24-hour market? |
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Forex provides frequent opportunities on both the upside
and downside. For many years the Foreign Exchange market
(FOREX or FX) was out of reach for the mainstream
investor. But nowadays with low transaction costs and
easy access to the Forex market, one can easily
participate in the worlds largest trading arena. It has been said that "The FOREX Market never sleeps." Unlike the Stock Market, there is no waiting for an opening bell. This can be very advantageous if you want to trade on a part-time basis, as you can choose when you want to trade: morning, noon or night. Also, because the FX market is sensitive to Political, Financial and Economical news, a trader can take immediate advantage of this volatility and trade accordingly. The downside to a 24 hour market is that one can easily get obsessed with trading and find themselves "Over trading." |
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| 2. In Forex the terms "margin" and "leverage" play a major part. Could you explain the coherences in contrast to the stock market? |
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The stock market generally does not allow leverage
products, unless you are trading an exchange traded
future. As FX is an OTC market, leverage can generally
be greater, and margin requirements are more flexible
depending on the product and entity. As an example of
leverage, if a client is on margin of 5% he can trade to
20 times his initial deposit. Also, there are no commissions or exchange fees to pay in the FOREX market which is an advantage to the trader. And with narrow spreads in FX compared to equities this can be an additional saving to the trader. Slippage is another factor in the stock market. But here in the FX market, this is not something that the FX trader has to worry about under normal market conditions. |
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| 3. The volume in the Forex market is bigger than in any other market. To what does a private trader have to pay attention to? |
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With a daily trading volume of over $2 trillion the FX
market dwarfs the equities and futures markets combined. This can be good news for traders as one will find that a true trend is more sustainable in FOREX and as long as they focus on the Major support and Resistance levels on a chart, Technical Analysis can play a useful tool for effective trading. At the same time it is useful to keep an eye on Political and Economical Data releases as they really can impact the FX market in a big way. |
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| 4. As with all trading strategies, one must always apply stringent risk and money management rules. What kind of risks are waiting for a Forex-Trader and what are the special preparations you have to make for the FX market? |
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Like all financial markets, one must have a full
understanding of the risks involved in trading whether
it is FOREX, Futures or Stocks. Because of the combined volatility and leverage offered in FX, traders should pay strict attention to risk control and never put themselves into a situation where they are over leveraged. As mentioned previously, News can have a swift impact on the FX market and therefore using Stop Loss Orders are essential. |
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| 5. Is it possible for a person who has a full-time job to trade in the Forex market? What are the conditions to trade successfully this way? |
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Absolutely, the FOREX market is highly liquid and after
spending some time studying the dynamics of this market,
one can find unique opportunities which are not
available in the other financial markets through most of
the day. There are key times during the day where there is good volatility and as long as a trader is equipped with effective strategies and good risk control, these can present profitable trading opportunities. |
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| 6. Is there any basic advice for new entrants in the FX market? |
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Be sensible, have a strong foundation with good
education and respect risk rather than abuse it. FX is a very high risk product as are all margined products. The key to becoming successful in the FX market is to ensure one has a plan and a sensible attitude to risk and money management. And don't get over leveraged, as you could be out of the market very quickly. There is no Holy Grail in any of the markets. If a new trader can find a good Educational and Trading Programme and understand how the FOREX market works then this can only help them in the long term. return to top |
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| 7. Is there a minimum size for a Forex-account? |
| A suggested amount of capital to start with is $2,000 and of course the more available capital one has the more flexible one can be. Whatever amount you put in, make sure it is money you can, in the worse case scenario, afford to lose i.e. dont trade with the money you set aside for your new car or house! |
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| 8. Are there recommended techniques or strategies that are commonly used in the Forex market? |
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A trader would be in a better position to first have a
look at a basket of trading styles and strategies. One
can now buy a suitable and reasonably priced trading
software package and back test ideas. The basic rule of thumb is to trade with the underlying trend. For higher risk traders, they may want to look at break out strategies or reversal strategies which professional traders employ around key news events. With the advent of computers and internet technology, todays trader is in a far better and advantageous position than before to test and simulate ideas, before putting large amounts of capital at risk. The key point to remember is for a trader to find a suitable strategy to fit their risk temperament, as well as their lifestyle. |
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| 9. What are the key characteristics of the Foreign Exchange Market? |
The key highlights are:
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| 10. What are the key reasons to Trade Foreign Exchange? |
There are 3 key reasons:
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| 11. Who are the main participants in the Forex market? |
The main Forex Market Participants are:
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| 12. What are the advantages of trading forex? |
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| 13. What are "The Majors"? |
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| 14. Which are the Most Liquid Currency Pairs? |
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| 15. How long on average does an "FX trade" last? |
| 80% of FX transactions are open for less than 7 days with 40% open for less than 2 days. |
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| 16. How does the Trading Day progress around the world? |
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