What is Forex?

Forex, or Foreign Exchange, is the simultaneous buying of one currency while selling for another. This market of exchange has more buyers and sellers and daily volume than any other in the world. Taking place in the major financial institutions across the globe, the Forex market is open 24-hours a day. 

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 buy the currency that increases in value relative to the one you sold. If you have bought a currency and the price appreciates in value, then you must sell the currency back in order to lock in the profit.

Quoting Conventions

Currencies are quoted in pairs. The first listed currency is known as the base currency, while the second is called the counter or quote currency. In the wholesale market, currencies are quoted using five significant numbers, with the last placeholder called a point or a pip

Like all financial products, FX quotes include a "bid" and "ask". By quoting both the bid and ask in real time, FXCM ensures that traders always receive a fair price on all transactions. As in 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.

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. 

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 into a negative balance, even in a highly volatile, fast moving market.

Rollover

For positions open at 5pm EST, there is a daily rollover interest rate a trader either pays or earns, depending on your established margin and position in the market. If you do not want to earn or pay interest on your positions, simply make sure it is closed at 5pm EST, the established end of the market day.

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.

Liquidity

The spot Forex market is a $1.4 trillion daily market, making it the largest and most liquid market in the world. This market can absorb trading volume and transaction sizes that dwarf the capacity of any other market. If you compare this to the $30 billion per day futures market it becomes clear that the futures markets provide only limited liquidity. The market is always liquid, meaning positions can be liquidated and stop orders executed without slippage. 
 

24-Hour Market

The Forex market is a seamless 24-hour market. At 5 PM Sunday, New York time, trading begins as markets open in Sydney and Singapore. At 7 PM the Tokyo market opens, followed by London at 2 AM, and finally New York at 8 AM. As a trader, this allows you to react to favorable/unfavorable news by trading immediately. It also gives traders the added flexibility of determining their trading day. 

By comparison, the currency futures markets in the United States, such as the Chicago Mercantile Exchange and Philadelphia Exchange, have regulated hours. The CME, for instance, opens at 8:20 AM New York Time and closes at 2:00PM. Therefore, if important data comes in from England or Japan while the U.S. futures market is closed, the next day’s opening could be a wild ride. 

Execution Quality and Speed

The futures market is known for inconsistent execution, both in terms of pricing and execution time. Every futures trader has experienced a half hour wait for a market order to be filled and has been executed at a price far away from where the market was supposed to be trading. Even with electronic trading and limited guarantees of execution speed, the price for fills on market orders is far from certain. FXCM offers instantaneous execution and price certainty. On the FX trading station, traders execute directly off real time streaming prices. There is no discrepancy between the displayed price and the execution price. This holds true even during volatile times and fast moving markets. In the futures market, execution is uncertain because all orders must be done on the exchange. This creates a situation where liquidity is limited by the number of participants, which in turn limits quantities that can be traded at a given price. Real time streaming prices ensure that market orders, stops, and limits are executed without slippage and/or partial fills. 

Commission Free Trading

In the futures market traders must pay a spread and a commission. All traded financial products have a “bid” (buy) price, and an “ask” (sell) price, with the difference defining the spread, or cost of execution. Up until recently, lack of transparency in the futures market has disguised the spread. Now online trading platforms, which show the depth of the market by including both the buy and sell price, allow traders to see the real cost of the trade. Because the currency market offers round-the-clock liquidity, traders receive tight, competitive spreads both intra-day and night. Futures traders are more vulnerable to liquidity risk and typically receive wider dealing spreads, especially during after hours trading.

FXCM charges no commission or transactions fees to trade currencies online or over the phone. The over-the counter structure of the currency market eliminates exchange and clearing fees, which in turn lowers transaction costs. Costs are further reduced by the efficiencies created by a purely electronic market place that allows clients to deal directly with the market maker, eliminating both ticket costs and middlemen. All clients have access to deal able bid/ask quotes. In the futures market the prices represent the LAST trade, not necessarily the price for which the contract will be filled. This lack of transparency hides the true cost of the trade.

Reporting and Back Office Capabilities

In the spot Forex market, traders can see the value of their positions and account equity move up and down with the market in real time. The key information for every account is re-calculated and updated every time the exchange rates change. Traders have immediate access to detailed information regarding every open position, open order, and the generated P/L per trade. Traders also have 24-hour access to full, real time snapshots of their account statement since inception, or on a daily, weekly, monthly or yearly basis. As a trader this means you never have to approximate your account equity or be uncertain in regards to available margin. 

Margin/Risk Management

For the purpose of risk management, traders must have position limits. This number is set relative to the money in a trader’s account. Risk is minimized in the Spot FX market because the online capabilities of the trading platform will automatically generate a margin call if the required margin amount exceeds the dollar value of the account as a result of trading losses. All open positions will be closed immediately regardless of the size or the nature of positions held within the account. If futures market moves against you your position may be liquidated at a loss and you will be liable for any resulting deficit in the account. 
 

Dealing Details

Hours:

The dealing desk is continually open between Sunday 2:15 PM New York time and Friday 4:00 PM New York time. Please note that updation for stops, limits, and entry orders elected due to weekend market activity occurs at 5pm ET market open.

Mode of Dealing: 

Quotations, Order Placement, and Confirmation available over the telephone or via the Internet.

Bid/Ask Spread

4-5 pips on the Majors and 5-20 pips on the Crosses: 

• U.S. Dollar / Japanese Yen (5 pips)
• U.S. Dollar / Swiss Franc (5 pips)
• U.S. Dollar / Canadian Dollar (5 pips)
• Euro / U.S. Dollar (4 pips)
• Euro / Great Britain Pound (5 pips)
• Euro / Japanese Yen (5 pips)
• Euro / Swiss Franc (7 pips)
• Euro / Canadian Dollar (10 pips)
• Euro / Australian Dollar (10 pips)
• Great Britain Pound / U.S. Dollar (5 pips)
• Great Britain Pound / Japanese Yen (10 pips)
• Great Britain pound / Swiss Franc (15 pips)
• Swiss Franc / Japanese Yen (10 pips)
• Australian Dollar / U.S. Dollar (5 pips)
• Australian Dollar / Canadian Dollar (10 pips)
• Australian Dollar / Japanese Yen (10 pips)
• New Zealand Dollar / U.S. Dollar (5 pips)

Order Sizes:

On the FXCM trading platform all trades are executed in standard sizes of 100,000 base currency per one lot. There is no maximum trading volume on the FXCM Trading Station, however, for trading sizes larger than $10,000,000 traders must request a quote over the telephone. 

Here are some examples:

• U.S. Dollar/ Japanese Yen (100,000 U.S. Dollars)
• Euro/ U.S. Dollar (100,000 Euros)
• Euro/ Great Britain Pound (100,000 Euros)
• Euro/ Japanese Yen (100,000 Euros)

Deposit Options: 

In addition to the US dollar, traders have the option of depositing funds and viewing all trading information in EUR, GBP, or JPY. For European and Asian clients in particular, this option will be of great convenience in handling all the administrative duties of trading -- thus allowing traders to focus more of their attention and energy on analyzing and profiting from market movements. 

Types of Orders: 

The trading platform provides sophisticated order entry and tracking of market orders, entry orders, stop/limit entry orders, and stop-loss orders. All of the above orders are Good Until Cancelled (GTC), which is valid until the order is executed or cancelled.

Margin:

FXCM enables currency trading to be conducted on a highly leveraged basis.  Every trader is able to select the degree of leverage or gearing that the trader wishes to employ in trading. Unless the trader specifies otherwise, FXCM sets the leverage level at FXCM's most lenient requirement. The requirements for leverage vary with account size, and may be changed from time to time at the sole discretion of the dealing desk, based on volume traded and market conditions.

Margin Requirement By Currency Pair:

• In the event that EUR/USD moves above 1.3000, the margin requirement for EUR based currency pairs will be adjusted upward to comply with NFA regulations.
• In the event that GBP/USD moves above 2.0000, the margin requirement for GBP based currency pairs will be adjusted upward to comply with NFA regulations.

Clients must have approximately 1% of the value of the positions they hold in their account for each lot of currency being traded (approximately 100:1 leverage). This amount does not change after 5:00 PM New York time, which is the rollover cut off, but stays constant at approximately 1% per lot the entire day and overnight. There is also an important safety feature imbedded in this system that prevents clients from losing more money than they have in the account. Once the account equity -- meaning the total floating value of the account -- falls below the margin requirement of approximately 1% per lot, the dealing desk will close all positions.

Rollover/Interest Policy:

In the spot forex market, trades must be settled in two business days. If a trader sells 10,000 euros on Tuesday, the trader must deliver 10,000 euros on Thursday, unless the position is rolled over. As a service to our traders, FXCM automatically rolls over all open positions to the next settlement date at 5:00 PM New York time. Rollover involves exchanging the position being held for a position expiring the following settlement date. The positions being exchanged are usually not valued at the same price. The amount of the difference varies greatly based on the currency pair, the interest rate differential between the two currencies, and fluctuates day to day with the movement of prices. On any given day, the rollover is approximately $1 per lot.

At 5:00 PM New York Time, funds are subtracted or added to accounts with open positions because of the automatic rollover. For accounts that have a margin requirement of 2% or more, funds are added to the account for positions in which the client is long (holding) the currency bearing the higher interest rate. Funds are deducted in the opposite circumstance. For accounts that do not have a 2% margin requirement, the rollover amount is deducted from the account for each position regardless of the account's holdings. This 2% margin requirement is the most generous policy available to traders in the Forex industry, as many firms require 3-5% minimum margin before traders can benefit from rollover. 

Note: On Wednesdays, 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.

Managed Forex trading is not for everyone. This IRA Forex fund trades all major foreign currencies such as the Euro dollar, British pound, Swiss franc, Japanese yen, Australian dollar and Canadian dollar. Managed Forex trading trading is a challenging and potentially profitable opportunity for educated and experienced investors. However, before deciding to participate in this Managed Forex trading fund, you should carefully consider your investment objectives, level of experience and risk appetite. Most importantly, do not invest in any IRA Forex fund with money  you cannot afford to lose. More over, the leveraged nature of Managed Forex trading means that any market movement will have an equally proportional effect on your deposited funds. This may work against you as well as for you. The possibility exists that you could sustain a total loss of initial margin funds in your trading  account. You should carefully consider the experience and background of the trading manager as well as the manner which you are charged commissions before you invest. This IRA Managed Forex trading program has no front or back no load.  The  trading manager is compensated primarily on a percentage of profits from the prior highest end on month account value after adjusting for additions and withdrawals . Forex trading is a qualified investment for this IRA Forex fund.

  Copyright © 2003 4xdirect. All rights reserved.
  Revised: 07/19/09. IRA Managed Forex trading fund.

Professionally managed Forex trading fund and currency trading fund that is Roth IRA qualified. Our Managed Forex trading fund manager has over 20 years market experience in both Forex trading and foreign currency trading.