Forex Detailz

What is FOREX?

Foreign Exchange Market (Forex) is the arena where a nation's currency is exchanged for that of another at a mutually agreed rate. It was created in the 70's when international trade transitioned from fixed to floating exchange rates, and nowadays is considered to be the largest financial market in the world because of its tremendous turnover.

Introduction to Forex

All currencies are traded in pairs and each is assigned with an abbreviation. Here are some of them (Table 1):

EUR Euro USD US Dollar GBP British Pound JPY Japanese Yen CHF Swiss Franc AUD Australian Dollar CAD Canadian Dollar NZD New Zealand Dollar SGD Singapore Dollar

Base currency is the first currency in the pair. Quote currency is the second currency in the pair.

USD / JPY = 120.25 Base currency Quote currency Rate

This abbreviation specifies how much you have to pay in quote currency to obtain one unit of the base currency (in this example, 120.25 Japanese Yen for one US Dollar). The minimum rate fluctuation is called a point or pip.

Most currencies, except USD/JPY, EUR/JPY, CHF/JPY and GBP/JPY where a pip is 0.01, have 4 digits after the period (a pip is 0.0001), and sometimes they are abbreviated to the last two digits. For example, if EURUSD is traded at 1.2389/1.2394 the quote may be abbreviated to 89/94.

The currency pairs on Forex are quoted as the Bid and Ask (or Offer) prices:

Bid Ask USD / JPY = 120.25 / 120.30

Bid is the rate at which you can sell the base currency, in our case it's US dollar, and buy the quote currency, i.e Japanese Yen.

Ask ( or Offer) is the rate at which you can buy the base currency, in our case US dollars, and sell the quote currency, i.e. Japanese Yen.

Spread is the difference between the Bid and the Ask price.

Pip is the smallest price increment a currency can make. Also known as a point. e.g. 1 pip = 0.0001 for EUR/USD, and 0.01 for USD/JPY.

Currency Rate is the value of one currency expressed in terms of another. The rate depends on the supply and demand on the market or restrictions by a government or by a central bank.

1.0 lot size for different currency pairs (Table 2) Currency 1.0 lot size 1 pip EURUSD EUR 100,000 0.0001 USDCHF USD 100,000 0.0001 EURUSD EUR 100,000 0.0001 GBPUSD GBP 70,000 0.0001 USDJPY USD 100,000 0.01 AUDUSD AUD 200,000 0.0001 USDCAD USD 100,000 0.0001 EURCHF EUR 100,000 0.0001 EURJPY EUR 100,000 0.01 EURGBP EUR 100,000 0.0001 GBPJPY GBP 70,000 0.01 GBPCHF GBP 70,000 0.0001 EURCAD EUR 100,000 0.0001 NZDUSD NZD 200,000 0.0001 USDSEK USD 100,000 0.0001 USDDKK USD 100,000 0.0001 USDNOK USD 100,000 0.0001 USDSGD USD 100,000 0.0001 USDZAR USD 100,000 0.0001 CHFJPY CHF 100,000 0.01

Why trade Forex?

Unlike other financial markets Forex has no physical location, like stock exchanges, for example. It operates through the electronic network of banks, computer terminals or via telephone. The lack of a physical exchange enables Forex to operate on a 24-hour basis, spanning from one time zone to another across the major financial centres (Sydney, Tokyo, Hong Kong, Frankfurt, London, New York etc). In every financial centre there are many dealers, who buy and sell currencies 24 hours a day during the whole business week. Trading begins in the Far East, New Zealand (Wellington), then Sydney, Tokyo, Hong Kong, Singapore, Moscow, Frankfurt-on-Maine, London and ends in New York and Los Angeles. Below there are approximate trading hours for regional markets (London time):

Japan 00:00-06:30 Continental Europe 06:30-13:00 Great Britain 8:30-15:30 USA 14:30-21:30

Forex has some advantages which make it very popular among investors:

• Liquidity. Forex is the largest financial market in the world, with the equivalent of over $3-4 trillion changing hands daily whereas traded volume on the stock markets equates to only 500 billion US dollars.
• Flexibility. Forex is a 24-hour market, which offers a major advantage over other markets, for example, stock exchanges which are only open during regional business hours. You can respond to breaking news immediately if the situation requires it and customise your trading schedule.
• Lower transaction costs. Traditionally there are no commissions or charges on Forex, except for the spread.
• Margin. Our 1:100 leverage (only for deposits below $ 100,000) is a powerful tool. You need to support a deposit of 1,000 US dollars to make a deal with $100,000. Such high leverage combined with rapid rate fluctuations can make this market profitable but at the same time risky: please see Risk Warning below.