Foreign Exchange, also referred as "Forex" is the largest financial market in the world. With an estimated $4 trillion in currencies traded daily. Forex provides income to millions of traders and large banks worldwide. It is the mechanism by which currencies are valued relative to one another, and exchanged. An individual or institution buys one currency and sells another in a simultaneous transaction. Currency trading always occurs in pairs where one currency is sold for another. The value of a currency is a reflection of the condition of that country's economy with respect to other major economies. A trader can earn money by either buying or selling the currency.
Forex market operates 24 hours, 5 days a week in a network of banks. No official opening and closing hours for Forex trading due to market is decentralized, it will depend on the Forex broker only
Every currency has its own standardized codes created by the International Standardization Organization (ISO), known as ISO codes which contain 3 letters. The first 2 letters stands for the name of the country and the last letter indicates the name of its currency.
Below are the currencies most traded in Forex market across the world:
Currencies quoted in pairs. An example for USD/JPY = 83.92, the first currency mentioned is called base currency while the next currency is called quote currency and the value shown is the exchange rate. In Forex market, buy is termed as "go long" or "long position" and sell is termed as "go short" or "short position". A "trade" occurs when a position is open. The "bid" is the price traders will sell and the "ask" is the price traders will pay for. The bid price is lower than the ask price and the difference among them is known as "spread"
In Forex, there is a term called "Swap Rate" or "Rollover Interest". Rollover interest is an amount of interest rate that traders pay or earn depending on the pair of currencies traded. As every Forex trade involves borrowing one currency to pay for another, rollover interest is component of the Forex trading. Interest is paid on the currency that is borrowed and is earned on the currency that trader purchased.
"Margin" is the minimum account size needed for a trader to trade. Unlike other markets, Forex enable traders to trade with leverage. Leverage is the ratio that traders can trade using a small account size. Trading account will experience a "margin call" if the equity drops below the margin requirements. In the event of a margin call, the trading system will instantly close a few or all open positions to prevent trader's account drops to negative balance.
Buy or sell position of a currency pair at the immediate price. Execution of this order results in opening a trade position automatically.
Pending order is the client's commitment to the broker to buy or sell a currency pair at a pre-defined price in the future. This kind of orders is used for opening a trade position provided the future quotes reached the pre-defined level. There are 4 types of pending orders accessible in our trading platform:
Take Profit order is intended for earning the profit when the quote price has reached a particular level. Execution of this order results in closing of the position. It is usually attached to an open position or a pending order. Terminal verifies long positions with Bid price for meeting this order provisions, and it does with Ask price for short positions.
Trailing Stop can be attached to an open position. It is very important to know that Trailing Stop works in trader terminal, not at the server like Stop Loss. This is why it does not work if the terminal is off. In this case, only the Stop Loss level will trigger that has been set by trailing stop. To set the trailing stop, the user has to perform the open position circumstance menu command of an identical name in the "Terminal" window. Then the user has to choose the desirable value of distance among the Stop Loss level and the real price in the list opened. Only one trailing stop may be set for each open position.
After the above actions have been performed, upon coming of new quotes, the terminal verifies whether the open position is rewarding. As long as profit in points becomes equal to or higher than the specified level, command to place the Stop Loss order will be given instantly. The order level is set at the specified distance from the live quote price. Furthermore, if price moves in the gaining direction, trailing stop will come to the Stop Loss level go after the price instantly, but if profitability of the position falls, the order will not be changed anymore. Thus, the profit of the trade position is fixed instantly.
Spot currency trading eliminates the middlemen, and enables you to trade definitely with the market liable for the pricing.
In the future markets, lot or contract sizes are determined by the exchanges. In Forex, you decide your own lot size. This enables traders to take part with accounts as small as $1 USD.
The retail transaction cost (the bid/ask spread) is generally less than 0.1 percent under usual market conditions. At UMOfx, the spread might be as low as 2 pips.
The Forex market never sleeps. Traders able to choose their convenient time to enter the market.
The Forex market is too huge for a single entity to control the market price for a period of time.
In Forex trading, a small margin deposit can manipulate a much bigger total contract value. Leverage gives the trader the skill to make amazing profits, and at the same time keep capital risk to a minimum.
Because the Forex market is so tremendous, it is also notably liquid. Under usual market conditions, in just one click you will be able to buy and sell at will.
UMOFX offers free 'demo' accounts to practice trading, together with breaking Forex news and charting services on the website for beginner who would want to hone their trading capabilities with virtue cash before opening a live trading account and risking real cash.
With UMOFX "Micro" trading accounts, only minimum account deposit of $1 USD is required. It generates Forex much more accessible to the average individual who does not have heaps of start-up trading.