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I - T R A D E F X |
Forex FAQ |
1. What is currency trading?
2. How is currency traded?
3. What is a margin account?
4. How is money made trading currencies?
5. What is the difference between Futures and FOREX?
6. Am I buying actual currencies when I trade?
7. What is Day Trading?
8. Why don't we hear more about the FOREX?
9. How can I get started?
1. What is currency trading?
Simply stated, each country has its own currency. Currency trading occurs when one country's currency is traded for another country's currency at the prevailing exchange rate. -top-
2. How is currency traded?
All currency trading is traded in LOTS. Each lot has a different amount of currency. For example; a Swiss Franc lot has 125,000 Swiss Francs in it. A trader does not buy lots in order to buy and sell it or trade it. A trader opens a margin account, enabling him the right to trade it. -top-
3. What is a margin account?
A margin account is a bond account. It is like a savings account. Before you can trade, you need to place a certain amount of money in what is called a margin account. You are guaranteeing other traders that you can pay them if you lose. That account is overseen by your broker. He monitors your account when you trade. He usually will not allow you to risk more than what is in your margin account. The margin account exists so, as you win on a daily basis, they have a place to deposit your money. Conversely, when you lose, they have an account to withdraw the money. -top-
4. How is money made trading currencies?
Currencies are traded on a pip system. A pip is another word for a point in the currency trading arena. Traders are trying to capture points. Depending on the currency, each point is worth a different amount. For example; the British Pound is worth about $10 per point that is traded per lot. If you trade 1 lot and capture 40 points, you just made $400. If you trade 10 lots and capture 40 points, you just made $4,000.00, etc. -top-
5. What is the difference between Futures and FOREX?
Currencies are the money that represent the monetary system from different countries. For example; the Japanese Yen, Canadian dollar, Brazilian Real, Swiss Franc, etc. Futures trading of currencies is done in trading pits, where you are trading those currencies today, but for future prices. FOREX trading is trading actual currencies at today's exchange rate with banks. All trades are done through brokers or market makers. There is considerable exposure to risk in any off-exchange foreign exchange transaction, including, but not limited to, leverage, creditworthiness, limited regulatory protection and market volatility that may substantially affect the price, or liquidity of a currency or currency pair. -top-
6. Am I buying actual currencies when I trade?
No. With your margin account, you are buying the right to trade one "lot" of a currency. Each lot equals a different amount of currency, depending on the currency being traded versus the US dollar. -top-
7. What is Day Trading?
Day Trading is when a trader buys and sells his lots or stocks that same day. He is in and out of the market that same day. He does not hold his position overnight or for a week, etc. -top-
8. Why don't we hear more about the FOREX?
Reliable sources indicate that about 1.9 trillion dollars of currency is traded daily on the FOREX. The majority of the volume historically is generated by major investors, banks, financial institutions and governments. Thanks to the Internet, more and more people like us are beginning to learn of the opportunities and are getting involved. -top-
9. How can I get started?
You need to be very careful and exercise due diligence. There are growing numbers of international firms offering various approaches to FOREX trading. Look before you leap. Do your homework and check references. Many companies prey on the greedy promising phenomenal returns that are the exception, not the rule! Find a company that doesn't promise the moon. If it sounds too good to be true, it usually is. Reputable firms have credentials.
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