Forex FAQ's

 How are currency prices determined?
  Currency prices are affected by a variety of economic and political conditions, most importantly
    interest rates, inflation and political stability.  Moreover, governments sometimes participate in the
    Forex market to influence the value of their currencies, either by flooding the market with their
    domestic currency in an attempt to lower the price, or conversely buying in order to raise the price. 
    This is known as Central Bank intervention.  Any of these factors, as well as large market orders,
    can cause high volatility in currency prices.  However, the size and volume of the Forex market
    makes it i mpossible for any one entity to "drive" the market for any length of time.

 How do I manage risk?
     The most common risk management tools in FX trading are the limit order and the stop loss order. 
     A limit order places restriction on the maximum price to be paid or the minimum price to be
     received.  A stop loss order ensures a particular position is automatically liquidated at a
     predetermined price in order to limit potential losses should be the market move against an
     investor's position.  The liquidity of the Forex market ensures that limit order and stop loss order can
     be easily executed.

 How long are positions maintained?
     Approximately 80% of all forex trades last seven days or less, while more than 40% last fewer than
     two days.  As a general rule, a position is kept open until one of the following occurs: 1) realization
     of sufficient profits from a position;  2) the specified stop-loss is triggered;  3) another position that
     has a better potential appears and you need these funds.

 How often are trades made?
     Market conditions dictate trading activity on any given day.  As a reference, the average small to
     medium trader might trade as often as 10 times a day.

 Is Forex trading expensive?
    No.  Most online Forex brokers allow customers to execute margin trades at up to 100:1 leverage. 
    This means that investor can execute trades of $100,000 with an initial margin requirement of
    $1000.  However, it is important to remember that while this type of leverage allows investors to
    maximize their profit potential, the potential for loss is equally great.  A more pragmatic margin trade
    for someone new to the FX markets would be 20:1 but ultimately depends on the investor's appetite
    for risk.

 What about terms like "bid/ask", "spread", and "rollover"?
 Bid Price: The bid is the price at which the market is prepared to buy a specific Currency in a
    Foreign Exchange Contract.  At this price, the trader can sell the base currency.  It is shown on the
    left side of the quotation.  For example, in the quote USD/CHF 1.2627/32, the bid price is 1.2627;
    meaning you can sell one US dollar for 1.2627 Swiss francs.
 Bid/Ask Spread: The difference between the bid and offer price.  Big Figure Quote - Dealer
    expression referring to the first few digits of an exchange rate.  These digits are often omitted in
    dealer quotes.  For example, a USD/JPY rate might be 117.30/117.35, but would be quoted verbally
    without the first three digits i.e. "30/35".
 Rollover: Process whereby the settlement of a deal is rolled forward to another value date.  The cost
    of this process is based on the interest rate differential of the two currencies.  

 What does it mean have a 'long' or 'short' position?
    In trading parlance, a long position is one in which a trader buys a currency at one price and aims to 
    sell it later at a higher price.  In this scenario, the investor benefits from a risking market.  A short
    position is one in which the trader sells a currency in anticipation that it will depreciate.  In this 
    scenario, the investor benefits from a rising market.  A short position is one in which the trader sells
    a currency in anticipation that it will depreciate.  In this scenario, the investor benefits from a
    declining market.  However, it is important to remember that every FX position requires an investor to
    go long in one currency and short the other. 

 What is a Limit order?
    A limit order is an order with restrictions on the maximum price to be paid or the minimum price to
    be received.  As an example, if the current price of USD/YEN is 117.00/05, then a limit order to buy
    USD would be at a price below 117.05 (ie 116.50).

 What is a Stop Loss order?
    A stop loss order is an order type whereby an open position is automatically liquidated at a specific
    price.  Often used to minimize exposure to losses if the market moves against an investor's
    position.  As an example, if an investor is long USD at 156.27, they might wish to put in a stop loss
    order for 155.49, which would limit losses should be the dollar depreciate, possibly below 155.49.

 What is Foreign Exchange?
     The Foreign Exchange market, also referred to as the "Forex" market, is the largest financial market
     in the world, with a daily average turnover of approximately US $3.2 trillion.  Foreign Exchange is
     the simultaneously buying of one currency and selling of another.  The world's currencies are on a
     floating exchange rate and are always traded in pairs, for example Euro/Dollar or Dollar/Yen.

 What is Margin?
    Margin is essentially collateral for a position.  It allows traders to take on leveraged positions with a
    fraction of the equity necessary to fund the trade.  In the equity markets, the usual margin allowed is
    50% which means an investor has doubled the buying power.  In the forex market leverage ranges
    from 1% to 2%, giving investors the high leverage needed to trade actively.

 What is the difference between an "intraday" and "overnight position"?
    Intraday positions are all positions which are opened and closed anytime during normal trading. 
    Overnight positions are positions that are still on at the end of normal trading hours, which are
    usually rolled over by your Forex broker (based on the currencies interest rate differentials) to the
    next day's price.

 What kind of trading strategy should I use?
    Currency traders make decisions using both technical factors and economic fundamentals. 
    Technical traders use charts, trend lines, support and resistance levels, and numerous patterns and
    mathematical analysis to identify trading opportunities, whereas fundamentalists predict price
    movements by interpreting a wide variety of economic information, including news, government-
    issued indicators and reports, and even rumor.  The most dramatic price movements however, occur
    when unexpected events happen.  The even can range from a Central bank raising domestic interest 
    rates to the outcome of a positical election or even an act of war.  Nonetheless, more often it is the
    expectation of an event that drives the market rather than the event itself.

 When is the FX market open for trading?
     A true 24-hour market, Forex trading begins each day in Sydney, and moves around the globe as
     the business day begins in each financial center, first to Tokyo, then London, and New York.  Unlike
     any other financial market, investors can respond to currency fluctuations caused by economic,
     social and political events at the time they occur - day or night. 

 Who are the participants in the FX Market?
     The Forex market is called an 'Interbank' market due to the fact that historically it has been
     dominated by banks, including central banks, commercial banks, and investment banks.  However,
     the percentage of other market participants is rapidly growing, and now includes large multinational
     corporations, global money managers, registered dealers, international money brokers, futures and
     options traders and private speculators.