Forex Market FAQs

In short, what is the forex market?

The Foreign Exchange market, also known as the "Forex" or the "FX" market, is the most liquid market in the world. In fact, with a daily average turnover of $3 trillion, it is the world's largest financial market. Forex trading. Forex trading refers to the simultaneous buying of one currency and selling of another. Currencies are thus traded in pairs, for example Euro/US Dollar (EUR/USD), or British Pound/US Dollar (GBP/USD).

What is traded on the forex market?

Money of course. Currencies, to be precise. As explained above, forex trading is the buying of one currency and simultaneous selling of another. Currencies are always traded in pairs, through dealers or brokers.

Who are the main forex market players?

For a long time, the forex market was the exclusive domain of banks and large financial institutions and was thus considered an "interbank" market. However, with the rise of the Internet and other technologies, smaller participants have made their way in the market. These include large multinational firms, registered dealers, private speculators and brokerage firms like Finotec.

Is there a central exchange for forex trading?

Unlike stock markets, the forex market has neither central exchange nor actual physical location. Since forex transactions are conducted over the phone or through electronic networks between two counterparts, the forex market is considered an "interbank" or "over-the-counter" (OTC) market.

What are the main currencies traded on the forex market?

The most commonly traded currencies are those belonging to governments with a strong and stable economy. First comes the US dollar (USD), which is traded on one side of over 85% of all transactions, then comes the euro (EUR) with a 35% share, followed by the yen (JPY) with a 20% share. Major currencies also include the British Pound (GBP), the Swiss Franc (CHF), the Canadian Dollar (CAD) and the Australian Dollar (AUD). The table below displays the name of the major currencies, along with their symbol and nickname.

Forex currency symbols are always made up of three letters, the first two designating the name of the country, and the third one designating the name of the currency.

What determines the price of a currency?

A number of political and economic factors, mainly inflation, interest rates, and political stability affect currencies. Sometimes government themselves enter the forex market to modify the value of their currencies. To do this, they either flood the market with the currency in order to try and lower price, or they buy as much currency as possible hoping to raise the price. They usually implement such policies through central banks. Although these factors, along with large market orders may cause volatility in currency prices, the size of the market makes it impossible for anyone to corner it.

When are currencies traded on the forex market?

Forex is traded 24 hours a week, 5 days a week, from Sunday 5 pm EST to Friday afternoon 4 pm EST. Forex markets follow the sun: trading opens in Sidney, followed by Tokyo, London and New York. This continuity is due to the fact that there is an overlap of different time zones and that there is no physical central exchange that opens and closes at a particular time, since transactions are conducted over an electronic network. You can therefore trade day and night at whatever hour is best for you.

Read more: Forex Trading Hours

What is a Spot market?

Spot markets refer to markets that deal in the current price of financials instruments.

If I don't pay commissions, how do brokers make money?

Indeed, dealing currencies with Finotec is commission-free. You pay no fees. The way it works is that brokers are usually compensated through spreads – the difference between the bid and the ask price.

How much does trading the forex market cost?

At Finotec, you can open an account and start trading with as little as $200! And considering that you can execute margin trades with leverage up to 200:1, with an initial margin requirement of $100, you can execute trades of $20,000. You must however remember that while leverage trading allows for increased profit potential, it also entails a great potential for loss. The Mini Account is a great way to give forex a go without risking too much.

What is long/short?

When you buy, (you buy the base currency and sell the quote currency), you do it in the hope that the base currency will rise in order for you to sell it a higher price and make profit. In forex lingo, this is called "taking a long position" or "going long."
When you sell, (you sell the base currency and buy the quote currency), you do it in the hope that the base currency will go down in order for you to buy it back a lower price and make profit. In forex lingo, this is called "taking a short position" or "going short." Remember long=buy, short=sell.

What does margin trading mean?

Margin trading simply means trading with borrowed capital. With Margin trading – a service offered by Finotec – clients can open leveraged positions with only a fraction of the sum required to fund the trade. In the forex market, clients benefit from leverage ranging from 1% to 3%.

Read more: Forex Margin