• Toll-free:+1 (888) 212-3536 Live Account Demo Account
  • Menu

Essential Knowledge to Trade Forex

What is margin?

Trading currencies on margin lets you increase your buying power. Here's a simplified example: If you have $2,000 cash in a margin account that allows 100:1 leverage, you could purchase up to $200,000 worth of currency-because you only have to post 1% of the purchase price as collateral. Another way of saying this is that you have $ 200,000 in buying power.


Benefits of Margin

With more buying power, you can increase your total return on investment with less cash outlay. To be sure, trading on margin magnifies your profits AND your losses. Here's a hypothetical example that demonstrates the upside of trading on margin:

With a USD$5,000 balance in your margin account, you decide that the US Dollar (USD) is undervalued against the Swiss Franc (CHF). To execute this strategy, you must buy Dollars (simultaneously selling Francs), and then wait for the exchange rate to rise. The current bid/ask price for USD/CHF is 1.6322/1.6327 (meaning you can buy $1 US for 1.6327 Swiss Francs or sell $1 US for 1.6322 francs). Your available leverage is 100:1 or 1%. You execute the trade, buying a one lot: buying 100,000 US dollars and selling 163,270 Swiss Francs. At 100:1 leverage, your initial margin deposit for this trade is $1,000. Your account balance is now $4000.As you expected, USD/CHF rises to 1.6435/40. You can now sell $1 US for 1.6435 Francs or buy $1 US for 1.6640 Francs. Since you're long dollars (and are short francs), you must now sell dollars and buy back the francs to realize any profit. You close out the position, selling one lot (selling 100,000 US dollars and receiving 1164350 CHF). Since you originally sold (paid) 164350 CHF, your profit is 1080 CHF. To calculate your P&L in terms of US dollars, simply divide 1080 by the current USD/CHF rate of 1.6435. Your profit on this trade is $657.13.


SUMMARY

Initial Investment: $1000
Profit: $657.13
Return on investment: 65.7%
If you had executed this trade without using leverage, your return on investment would be less than 1%.

Managing a Margin Account

Trading on margin can be a profitable investment strategy, but it's important that you take the time to understand the risks.


Who are the participants in the Forex markets?
The main participants in the Forex market include: central banks, commercial banks, non-banking financial institutions, self-supporting traders and large multinational enterprises. All these traders deal frequently and in great amounts. Each lot can reach several million dollars, and frequently even more than several hundred million dollars. According to the purpose of investing in Forex, the participants can be divided into two:categories investors and speculators.

What drives Forex market prices?
International economic trading is critical to any country. Any broad-based economic conditions, goods and capital trading can cause sudden and dramatic currency price swings. This is what drives the currency markets and in many cases it is the anticipation of an economic trend rather than the trend itself

How many Forex markets are there in the world?
At present, there are more than 30+ Forex markets in the world located in the different countries and regions across the world. It is divided into the Asia-pacific region, Europe, and North America. In Europe the most important markets are: London, Frankfurt, Zurich and Paris. Iin North America New York and Los Angeles; In Asia-pacific Sydney, Tokyo, Singapore and Hong Kong.
Foreign exchange is a continuous global market, providing participants with 24-hour market access, making the foreign exchange market is a substantial attraction to many of its participants. The only break in trading occur during a brief period over the weekend. While Forex is a 24h market, some market hours of a particular session can have a more direct impact on the liquidity available for trading a particular currency. The details of the market are as follows

Region

City

open
(Beijing Time,GMT+8)

close
(Beijing Time,GMT+8)

Asia-pacific

Sydney

7:00am

2:00pm

Tokyo

8:00am

2:00pm

Hongkong

9:00am

4:00pm

Europe

Frankfurt

3:00pm

11:00pm

Paris

3:00pm

11:00pm

London

3:30pm(summer)
4:30pm(winter)

11:30pm(summer)
12:30am(winter)

North America

New York

8:30pm(summer)
9:30pm(winter)

3:00am(summer)
4:00am(winter)

 

Which is the largest Forex market in Asia?
Tokyo is the largest Forex-trading center in Asia. Before the 1960s, Japan implemented strict monetary control. In 1964, Japan become a member of the IMF allowing the JPY to be converted. After the 1980s, with the development of Japanese economy and improvement of that country's trading position, the Tokyo Forex market grew into one of the three biggest markets in the world. Since the 1990s when the bubble burst in the economy, the Tokyo Forex market has not been as active.

Trading in Tokyo Forex market is mainly for USD/JPY. The trading demand of exporters and importers has a great effect on the fluctuation of the JPY exchange rate.

Where is the largest Forex trading center?
London has been and remains the principal market in the World. London's convenient geographical location (operating during Asian and American markets) is also instrumental in preserving its dominance in the Euro market. London continues to be the largest Forex trading center, and has great influence over the trend of entire Forex markets.

become our partner IB

Register for a call back