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• What is Forex?

Foreign Exchange (forex) is the simultaneous buying of one currency, and selling of
another currency. Daily volume in the currency market exceeds $1.4 trillion, making
it the largest and most liquid market in the world. Unlike other financial markets, the
forex market has no physical location or central exchange.

It is an over-the-counter market where buyers and sellers including banks, corporations,
and private investors conduct business. Foreign exchange trading takes place in financial
trading centers all over the world, including New York, London, and Tokyo creating one
cohesive, international market.

The huge number and diversity of players involved make it difficult for even governments
to control the direction of the market. The unmatched liquidity and around-the-clock
global activity make forex the ideal market for active traders.

Traditionally the forex market was only available to larger entities trading currencies for
commercial and investment purposes through banks. Now trading platforms, such as the
FX Trading Station, allow smaller financial institutions and retail investors access to a
similar level of liquidity as the major foreign exchange banks, by offering a gateway to
the primary (Interbank) market.

• Buying/Selling

In the forex market currencies are always priced in pairs; therefore all trades result in
the simultaneous buying of one currency and the selling of another. The objective of currency trading is to exchange one currency for another in the expectation that the market rate or price will change so that the currency you bought has increased its value relative to the one you sold. If you have bought a currency and the price appreciates in value, the trader must sell the currency back in order to lock in the profit. An open trade or position is one in which a trader has either bought/sold one currency pair and has not sold/bought back the equivalent amount to effectively close the position.

• Quoting Conventions

The first currency in the pair is referred to as the base currency, and the second currency is the counter or quote currency. The U.S Dollar, as the world’s dominant currency, is usually considered the base currency for quotes, and includes USD/JPY, USD/CHF, and USD/CAD. This means that quotes are expressed as a unit of $1 USD per the other currency quoted in the pair. The exceptions are the Euro, Great Britain pund, and Australian dollar. These currencies are quoted as dollars per foreign currency. As with all financial products, FX quotes include a "bid" and "ask". The bid is the price at which a market maker (FXCM) is willing to buy (and clients can sell) the base currency in exchange for the counter currency. The ask is the price at which a market maker (FXCM) will sell (and clients can buy) the base currency in exchange for the counter currency. The difference between the bid and the ask price is referred to as the spread. In the wholesale market, currencies are quoted using five significant numbers, with the last placeholder called a point or a pip. In forex, like any traded instrument, there is an immediate cost in establishing a position. For example, USD/JPY may bid at 131.40 and ask at 131.45, this five-pip spread defines the trader’s cost, which can be recovered with a favorable currency move in the market. By quoting both the bid and ask in real time, FXCM ensures that traders always receive a fair price on all transactions. For other commodities where traders must request a price before dealing, brokers have the opportunity to check a trader's existing position and 'shade' the price (in their favor) a few pips depending on the trader's position.

• Margin

Margin The margin deposit is not a down payment on a purchase of equity, as many perceive margins to be in the stock markets. Rather, the margin is a performance bond, or good faith deposit, to ensure against trading losses. The margin requirement allows traders to hold a position much larger than the account value. FXCM’ s online trading platform has margin management capabilities, which allow for this high leverage. The trading platform performs an automatic pre-deal check for margin availability, and will only execute the deal if the client has sufficient margin funds in his or her account. The system also calculates the funds needed for current positions and displays this information to clients in real time. In the event that funds in the account fall below margin requirements, the FXCM Dealing Desk will close all open positions. This prevents clients' accounts from falling below the available equity even in a highly volatile, fast moving market.

• Rollover

Rollover In the spot forex market trades must be settled in two business days. For example, if a trader sells 100,000 euros on Tuesday, the trader must deliver 100,000 euros on Thursday, unless the position is rolled over. As a service to our traders, FXCM automatically rolls over all open positions i.e. swaps the trade forward to the next settlement date (two business days) at 5:00 PM New York time. The swap rates are determined at the Interbank level and are tradable instruments. In any spot rollover transaction there is a difference in interest rates between the two currencies that will be reflected in the overnight “loan.” If the trader is long the currency with the higher interest rate in the pair, the trader should gain on the spot rollover through the premium relationship of that currency relative to the short currency. The amount of the gain is determined by the interest rate differential between the two currencies, and fluctuates day to day with the movement of prices. For instance, on any given day, the rollover can be $2 per lot for USD/JPY and $15 for GBP/JPY. Rollover fees are shown in dollars, and are posted in the “interest column” on the FX Trading Station every day at 3:00 pm New York time. For day traders that never hold a position overnight, rollover will not affect trading. Note: For positions that are open on Wednesday and held through 5:00 PM New York time, the amount added or subtracted to an account as a result of rolling over a position tends to be around three times the usual amount. This "3-Day" rollover accounts for settlement of trades through the weekend period.

• What Every Currency Trader Should Know

The forex market is one of the most popular markets for speculation due to its enormous size, liquidity, and tendency for currencies to move in strong trends. An enticing aspect of trading currencies is the high degree of leverage available. FXCM allows positions to be leveraged up to 100:1. Without proper risk management, this high degree of leverage can lead to enormous swings between profit and loss. Knowing that even seasoned traders suffer losses, speculation in the forex market should only be conducted with risk capital funds that if lost will not significantly affect one's personal financial well being. The FXCM Mini account was designed for those new to online currency trading. There is a smaller deposit required to open an FXCM Mini account and trading sizes are 1/10th the size of a regular account. The smaller trade size enables traders to take smaller risks. The FXCM Mini is intended to introduce traders to the excitement of currency trading while minimizing risk.