FAQs

Q?

Why should I trade Forex?

A.

People trade for several reasons. For accessibility to various exchanges around the world, the high liquidity of the Forex market, opportunities to leverage trading currencies (unlike assets), and the global exposure Forex provides. Another popular reason is the low trading expense; because there are many buyers and sellers, the spreads are low and the trading cost is reasonable.

Q?

How do I compete with big banks that have all the funds?

A.

No doubt, big banks have all the expertise and resources to engage a trade. The best thing you can do is prepare yourself adequately. Some traders evaluate currency pairs by using fundamental analysis. This involves studying economic fundamentals in various countries. Traders might also look at GDP, inflation rate and unemployment levels of both countries.

Q?

When I identify an Upside Gap Two Crows Pattern, how do I execute a forex strategy?

A.

In theory, this pattern is a bearish reversal pattern seen in both Forex and stock markets. Although there is some debate about its dependability, a strong pattern with supporting evidence of reversal from external indicators can still produce a handsome profit. Simply look for a currency with a long an aggressive uptrend because it indicates a bullish behaviour.

Q?

What is the meaning of ‘weak dollar’ and ‘strong dollar’?

A.

The answer is straightforward. These terms are used to describe the strength of the US dollar (against other currencies) in the foreign exchange market. There is a strong dollar when the USD has risen to a level that is significantly high against another currency, and it is weak when the USD is significantly lower.

Q?

What is Directional Movement Index and how do I use it?

A.

The Directional Movement Index (DMI) is a momentum indicator used to identify the presence and strength of a trend. And it can be used in Forex trading, as well as in Futures or stocks trading. It also proves a major indicator in Forex trading because it is popular among traders. The two DMI lines are indicative of respective strengths of buying and selling pressure.

Q?

How can I trade a currency if I don’t have it?

A.

There are many ways to trade a currency you don’t already have. Use any of the available contracts designed for people to trade in currencies they don’t own. For instance, you can trade the pound if you don’t have it by purchasing and selling options that involve the currency. Simply call and place options on the EUR/USD for currency exchange with the US dollar.

Q?

How do I create a Forex trading strategy with Time Segmented Volume (TSV)?

A.

You can build a forex trading strategy with TSV because it allows you to compare volume data and determine safe periods for buying or selling. TSV also allows you to compare the various volumes of a currency at specific time frames. When TSV goes below or above the zero line, it indicates a selling or buying pressure respectively. You could use this knowledge to make strategic decisions.

Q?

How do I close a long position in the Forex market?

A.

For instance, if you establish a long position in JPY/USD at 1.34, and you see signs that the market could top out at the 1.37 level, you wouldn’t want to leave this current long position. At the same time, you would want to protect yourself against a short-term downside correction. The best thing to do is to initiate a short position in JPY/USD at 1.37.

Q?

What are the four transactions of Covered Interest Arbitrage (CIA)?

A.

With a CIA, investors can conduct four transactions to make profit. The first transaction involves borrowing a certain currency from a finance centre. Next, the borrowed currency is converted into the second currency. The third operation is the investment of this new currency into the Forex market. Finally, the principal and interest of the second currency are sold into the forward market.

Q?

What are the objectives of Covered Interest Arbitrage?

A.

The objectives of covered interest arbitrage include allowing investors to trade volatile currency pairs, and moving funds across monetary centres to promote Forex trade. Finally, it has a goal of completing a set of four transactions in four steps to help drive profit. Covered interest arbitrage is an investment strategy that hedges against exchange rate risks.

Q?

Who determines the interest rates?

A.

In countries that use a centralised banking model, the central bank determines the interest rate. The government’s economic observers make a policy that helps ensure price stability and liquidity for the country. The policy is checked regularly to make sure that the supply of money within the economy is at an equilibrium.

Q?

How is funds withdrawal processed in the Forex market?

A.

Withdrawals can be made through your account and they can be processed in the same order as the funds received. They could be returned to the originated account through debit card, eCheck, bank transfer or check.

Q?

What is arbitrage?

A.

Arbitrage is simply purchasing a security in a specific market and at the same time, selling it at a greater price in another market, thus profiting from a temporary difference in prices. This is a risk-free profit for the trader.

Q?

How do you make money by trading money?

A.

Forex investors can trade in almost any currency in the world. How money is made from Forex is entirely speculative. You are betting that value of one currency will rise relative to the other. Currencies are traded, and priced in pairs; an investor makes money in Forex through a value appreciation of a quoted currency, or from a value decrease in the base currency.

Q?

What are people really buying or selling in the currency market?

A.

The honest answer is ‘nothing’. The Forex market is essentially a speculative one. There is no physical change of currencies and all trades are computer entries. The main reason the Forex market exists is to expedite the exchange of one currency to another so that large corporations can trade currencies for purchase of goods, mergers and other acquisition activity.

Q?

What is a currency carry trade?

A.

Carry is the most common trade in the Forex market, performed by both the smallest retail speculators and the largest hedge funds. The carry trade works on the fact that every country currency has an interest rate attached to it. With carry, a trader goes long the currency with a high interest and backs the currency with a low interest rate.

Q?

What is a pip?

A.

Pip is short for “percentage in point”, and it is the smallest growth of trade in Forex. The value of bids in Forex is quoted down to the fourth decimal place, for instance 1.3000. Any alteration of the 4th decimal point is called the ‘pip’, and is set as equal to 1/100th of 1%.

Q?

Where is the commission on Forex trading?

A.

Investors who trade stocks, futures or options usually go through a broker, who acts as a middle man. The ‘middleman’ gets a commission for this service. However, in the Forex market, there are no such commissions. Forex is a principals-only market. The FX firms are dealers, not brokers. They do not take a commission, instead they earn money through the bid-ask spread.

Q?

Can you trade on an account without an internet connection?

A.

To some extent. You can receive quotations, check graphical information, and look up the account via the broker’s WAP site or the page On-line access. Depending on the broker, all operations with your account should be performed by you through the trade terminal Meta Trader 4. But you can choose to close opened positions by phone if there is a disconnection.

Q?

Which trading platform is the best?

A.

There is no distinctive ‘best’ platform, as the type you use will depend on the nature of your trade. However, the MetaTrader; MT4 and MT5 platforms are easily the most widely operated trading platforms because of their ease of use and user-friendly interface.

Q?

What are dealing desk and non-dealing desk platforms?

A.

A dealing desk platform is used by market makers. The system links the trading platform to the dealing desk of the broker so that every pricing originates from there, and all orders are passed through the same desk. Conversely, a non-dealing desk uses the ECN model, where prices come straight from different liquidity providers and displayed on the platform.

Q?

What is the difference between a demo accounts and live account?

A.

Technically, there is no difference in trading activity on both accounts, but while a demo is not real and uses fake money, a live account is the real thing. A demo account is generally used for practice and is recommended for beginners who are just entering the Forex scene. It gives you all the experience of trading on an actual account.

Q?

What are trading platforms?

A.

Since the mainstream use of the internet, Forex traders have gone past the trading floors. Platforms are the channels through which investors buy, sell and monitor their trades. Each broker has a specific type of platform depending on the nature of the trade.

Q?

Do I need any documents to open an account and withdraw funds?

A.

You can open an account online either in your office or home. To open an account, you will need to sign into the “client account” system, obtain individual parameters for entering, and go through the account opening process. This takes no longer than 10 minutes in most cases. “Signing in” allows you to perform all operations including withdrawal, deposition and funds transfer.

Q?

Frequently Asked Questions About FOREX Trading

A.

Forex Trading has continued to become more popular, especially with the advancement of technology for trading platforms. Forex, which is actually an acronym for Foreign Exchange, is the trading on foreign currencies in a decentralized global market. The Forex market is the biggest, most liquid market in the world, trading with an average daily volume of more than $5 trillion.

Below is a list of frequently asked questions for beginners and intermediate traders.

Q?

What is Forex Trading Online?

A.

The Foreign exchange market is one of the most stimulating, fast-paced markets around. Not too long ago, forex trading in the currency market was the domain of large financial institutions, central banks, corporations, hedge funds and wealthy businessmen. But since the advent of the internet, it is now possible for the average investor to buy and sell currency online; hence, Forex online.

Q?

What do you need to start Forex trading?

A.

To open a Forex trading account and start earning money on financial assets, you must have internet access, minimum deposit funds for your account, knowledge (or willingness to learn) how to predict the behaviour of foreign currencies and other financial instrument rates. Beginners are advised to first practice with a demo account and funds before moving onto a live platform.

Q?

Is Forex trading a risky venture?

A.

Like every other form of investment, forex trading has its own risks. The currency market can experience sudden price changes, in the same way as bonds, stocks and commodity markets. Forex investors are therefore advised to do their due diligence or discuss with a financial advisor before taking any major financial decision.

Q?

What financial instruments can one trade with?

A.

It depends on the broker’s platform you are using. Some brokers allow a maximum of 21 different currency pairs at a time, including GBP/USD, USD/JPY, EUR/USD, USD/CHF and EURO index (EURX) and US Dollar index (USDX). The American stock market is designated by CFD shares of 32 top companies and 3 index shares. Trading with USD and another currency is the most common currency pair.

Q?

What is a Forex spread?

A.

This is the difference between buying and selling prices on currency pairs. For example, if the leverage provided by a Forex broker is 1:100, which is standard, a trader with 100k can leverage his trade. The spread on all trading currencies is fixed and sums up to 2 -4 points with respect to the currency pair. However, spread is not fixed (1 – 5) for CFD contracts.

Q?

What is the minimum and maximum account deposit?

A.

Every trade has boundaries in other to control the risk and regulate trade activities. The minimum deposit is the lowest amount a broker accepts for a trader to start biding on its platform. Conversely, the maximum amount you can put into a trading account at any time. While some brokers allow a minimum of $250, some request as high as $2,500.