Forex faq - learn forex trading

What is forex?

The foreign exchange market. It is the largest financial market in the world with approx. $2 trillion dollars worth of transactions every day. The world currencies are always traded in pairs e.g U.S dollar/yen or Euro/sterling. It is the simultaneous purchase of one currency and selling of another.

Who participates in FX?

Banks (Central, commercial and investment), money managers, brokers, multi-nationals, traders and private investors.

When is the Forex market open?

Forex is a 24/7 market open from Sunday evening to Friday close. The first session is the Tokyo session beginning each week on Monday morning until close on Fri.

What are the most common currencies on Forex?

Mainly US dollars, Jap Yen, Euro, British Pound, Swiss France, Canadian Dollar and Australian Dollar

What are the short and long positions?

Short = in anticaption of downturn. Benefiting from decline.
Long positions are taken when a trader buys a currency at a low price in anticipation of selling it later for more. Making these moves allows the investor to benefit from changing market prices. Remember! Since currencies are traded in pairs, every forex position inevitably requires the investor to go short in one currency and long in the other.

Is Forex risky?

A: Yes, we advise all our clients that foreign exchange trading does involve substantial amount of risk. With Easy-Forex® you cannot lose more than your ‘margin’, the money you are prepared to risk plus the daily rolling fee if you have entered a Day Trade transaction. Profits are unlimited but you can never lose more than what you initially risked. However, risk only what you can afford. Before you join you need to read our Disclaimer and Terms and Conditions.

What is a pip?

Pip stands for "percentage in point" and it is the smallest increment by which a Forex cross price changes. Most currency pairs are quoted to four decimal places, meaning that a movement from 1.1850 to 1.1851 for a currency pair would constitute one pip. For a particular position, you can calculate the value of a single pip using the following formula. For instance, you know that the EURUSD is quoted with four decimals, so for a given position you can multiply the position amount by the value of one pip, or USD 0.0001. So, on a EURUSD 100,000 contract, one pip would equal USD 10. On a USDJPY 100,000 contract, one pip is equal to JPY 1,000 because USDJPY is quoted with only two decimals (meaning 1 pip = JPY 0.01).

What is spot?

A direct trade on a market price with a standard settlement date (Value date) of 2 business days from the trade date.

What is the spread?

The difference between the Bid price (at which you can sell the trading instrument) and the Ask price (at which you can buy the trading instrument).

What does Value Date mean?

The date when the settlement of funds for a trade transaction will take place in your account. This is usually at spot (2 working days after the trade), but can be less or more days. This allows time for the necessary paperwork and cash transfers to be arranged.

What is a Forward Outright?

An order to trade a Forex instrument at a fixed price on a fixed date. The price of the forward outright is the spot rate adjusted for the interest rate differential between the two currencies until maturity. Forex forward outrights enable you to take advantage of the interest rate differentials between two currencies and to hedge foreign exchange exposure risks. By purchasing a currency for a future date at a fixed price using a forward outright, you can avoid risky exposure to unpredictable foreign exchange fluctuations.

How can I use a Limit Order?

Limit orders are commonly used to enter a market and to take profit at predefined levels. Limit orders to buy are placed below the current market price and are executed when the Ask price hits or breaches the price level specified. (If placed above the current market price, the order is filled instantly at the best available price below or at the limit price.) Limit orders to sell are placed above the current market price and are executed when the Bid price breaches the price level specified. (If placed below the current market price, the order is filled instantly at the best available price above or at the limit price.) When a limit order is triggered, it is filled as soon as possible at the price obtainable on the market. Note that the price at which your order is filled may differ from the price you set for the order if the opening price of the market is better than your limit price.

How can I use a Stop Order?

Forex Stop orders are commonly used to exit positions and to protect investments in the event that the market moves against an open position. Stop orders to sell are placed below the current market level and are executed when the Bid price hits or breaches the price level specified. Stop orders to buy are placed above the current market level and are executed when the Ask price hits or breaches the price level specified.

Stop if Bid orders are commonly used to buy the applicable currency pair in a rising market. If the price level specified in the order is actually Bid on the market, the order will be filled at the price offered by the market maker. For example, if you sold GBPUSD at 1.4280, with a Stop Bid at 1.4330, the position would be closed (GBPUSD would be bought) if the Bid price hit or breached 1.4330. We recommend the use of Stop if Bid orders only to buy Forex positions. The use of Stop if Bid to sell Forex positions can result in positions being prematurely closed if a market event causes the Bid/Ask spread to temporarily widen.

Stop if Offered orders are commonly used to sell the applicable currency pair in a falling market. If the price level specified is actually offered in the market, the order will be filled at the price bid by market maker. For example, if you bought USDJPY at 132.00, with a Stop Offer at 131.50, the position would be closed (USDJPY would be sold) if the Offer price hit or breached 131.50 (in other words, if 131.50 is offered). We recommend the use of Stop if Offered orders only to sell Forex positions. The use of Stop if Offered orders to buy Forex positions can result in positions being prematurely closed if a market event causes the Bid/Ask spread to temporarily widen.

What are Related Trade Orders?

Related, or contingent, orders are trade orders linked together to create more complex trading strategies. There are several types of contingent orders, the most popular of which are If Done and O.C.O. orders. If Done orders (also known as slave orders) where a slave, or subordinate, order only becomes active if the first one is executed. For example, you might place a limit order to buy EURUSD and then, if this order is filled, a subsequent limit order to sell EURUSD if the spot price breaches a certain level. One Cancels the Other (O.C.O.) is an order sequence where the execution of one order cancels the other. O.C.O. orders are often used to place both a stop loss and a profit taking (limit) order around a position – the first of the orders to execute will automatically cancel the other.
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