FAQs

Frequently Ask Questions

What is Forex trading in plain words?

Forex trading is the trading of foreign currencies. Currencies like the U.S. dollar (USD), Euro (EUR), Canadian dollar (CAD), British pound (GBP), Australian dollar (AUD), New Zealand dollar (NZD), Swiss franc and many others freely float in value against each other in financial instruments known as currency pairs. For example, a commonly traded currency pair is EUR/USD, which pits the Euro against the U.S. dollar. When the Euro goes up in value against the U.S. dollar, EUR/USD will go up. When the U.S. dollar rises in value compared to the Euro, the EUR/USD will go down.

A pip is the smallest indivisible unit in the Forex market. You will often hear or read about a 20-pip move or a 50-pip move. Most Forex pairs are expressed with four digits after the decimal point. But those with Japanese Yen (JPY) as the second currency in the pair are expressed with only two digits after the decimal point. So, for example, a pip of USD/JPY is .01, while for EUR/USD, the pip is .0001

Day Trading and Swing Trading the Currency Market: Technical and Fundamental Strategies to Profit from Market Moves by Kathy Lien is a tremendous all-around book.

It gives you a strong introduction to the craft of Forex trading and takes you right on through to some pretty deep topics.
Currency Trading for Dummies by Kathleen Brooks and Brian Dolanbro is a great book for beginners. It provides a good grounding in Forex trading, familiarizing you with the terms and teaching you the ropes of Forex trading.

A pip is the smallest indivisible unit in the Forex market. You will often hear or read about a 20-pip move or a 50-pip move. Most Forex pairs are expressed with four digits after the decimal point. But those with Japanese Yen (JPY) as the second currency in the pair are expressed with only two digits after the decimal point. So, for example, a pip of USD/JPY is .01, while for EUR/USD, the pip is .0001

Forex trading is for anyone who wants to make investments in the currency market. The features that distinguish the Forex market from the stock or commodities markets include:
24/5 market–doesn’t close except on the weekends easier access to leverage easier access to shorting since each pair is set up in opposition to another currency. Forex is well-suited for people who have limited time to trade, but can also be traded short-term using strategies like scalping or high-frequency trading. Scalping and high-frequency trading are very short-term strategies and not for someone who wants a passive income stream. The closest Forex comes to a passive activity is trading on a long-term timeframe, which in Forex can be a few months or years. You could earn a passive income on the interest difference between the two currencies. This is known as a carry trade.

Leverage is usually specified in ratios like 10:1 or 20:1. This means that for every one unit of currency you have in your account, you get 10 (10:1) or 20 (20:1) units of trading power. The money in your account must maintain margin requirements, or you will face margin calls. For example, if your account holds 1,000 USD and your leverage is 10:1, you have USD 10,000 in trading power. If you make a trade worth $9,500 and the value of the Forex pair drops below USD 9,000, it means you are over $1,000 in the hole. This means that you don’t have sufficient funds to pay your losses. You could receive a margin call at that point. This means that your trades will be immediately closed because you do not have enough margin to secure the losses.

Alternatives to Forex trading include stock trading, cryptocurrency trading, and commodities trading. Stock trading is much stricter in its regulations. It is much more challenging to get approved to use leverage and to get approval to sell stocks short. The stock market is also closed overnight and on weekends.
The commodities market is open for trading even less often. Commodities include goods like crude oil, natural gas, corn, and metals. Signing up for an account with a commodities broker is similar to signing up to trade Forex. You will need to provide various information to the broker, and if they feel you are an acceptable risk, they will give you an account.
Cryptocurrency trading is in its infancy. The utility of cryptocurrency is low and price changes are mostly driven by hype and market sentiment as opposed to fundamental or technical factors. Some in the financial community does not consider them investments.
Copy-trading lets you essentially piggyback on the trades of someone else. This is possible in Forex and the stock market as well.
Some brokers who say they are Forex brokers do not offer actual Forex pairs. They offer something called CFDs (contracts for difference). Trading in CFDs means that instead of buying and selling the actual Forex pair, you buy and sell CFDs to pay or be paid the difference in price. CFDs are a way to gain the benefits of trading Forex without actually owning Forex pairs. CFDs are popular with brokers who sell a lot of different financial instruments like commodities and cryptocurrency.

The modern Forex market began to take shape in 1971 when the Bretton Woods system of fixed exchange rates was eliminated. This is generally credited to Richard Nixon. Various other agreements prevailed until 1973 when the developed world began to allow their currencies to float against each other freely. Trading in Forex was limited to large financial institutions, and the rise of the Internet in the 1990s and Forex trades began offering the ability to trade online.

The Forex market is a global market whose orders route around the world. So if you are located on the east coast of America, your orders might go through New York during the day, but after closing time, your order would be routed through somewhere else, perhaps Tokyo or London. And since Forex is a global market with such flexibility, you can also trade Forex online from anywhere in the world.

The Forex market’s easy access to leverage and being able to easily enter a trade on either side of the market makes Forex trading very appealing to investors. The market is open 24 hours a day, 5 days a week, which means you can trade on a schedule that works for you. There are great opportunities in the Forex market. Even when stocks are flat, Forex is a volatile market that offers opportunities for profitable trading.

Alternatives to Forex trading include stock trading, The five strictest Forex regulators in the world are the U.S. CFTC (Commodities and Futures Trade Commission), the U.S. NFA (National Futures Association), the U.K. FCA (Financial Conduct Authority), the FINMA (Swiss Financial Market Supervisory Authority) and the ASIC (Australian Securities and Investment Commission). These organizations set up regulations to protect the clients who trade with brokers who fall under their respective authorities. These regulations include limiting the leverage available to Forex traders, maintaining the separation of investor funds from those of the brokerage itself and ensuring that the broker maintains a certain minimum of funds on hand at all times. 

Early primitive forms of currency trading go back to the ancient Greeks, Egyptians, and Romans. It was the Romans who centralized the minting of currency and imposed a government monopoly on the trading of currency.
The first Forex market was founded in Amsterdam in the 17th century. Amsterdam was a crossroads of many different nationalities and was an enclave of not only social, but also economic freedom.
London was an epicenter of the Forex market around the time of World War I. It was also around this time that governments began to print more money than they had gold to back it, bringing the gold standard into question. During World War II, the Bretton Woods system was introduced, but it also failed. By 1973, most of the world’s currencies were allowed to float freely against each other, giving us the Forex market we know today.

The first step is to find a broker. Most brokers these days have demo accounts, so you can get acquainted with their trading platform. Using a demo account is a great way to learn without risking any money. Once you have signed up for a demo account and learned the ropes of Forex, the next step is to sign up for a real account. You will typically need to provide information about your identity, your e-mail address and a funding source for your account.
The best way to find a broker is through word of mouth from someone you trust. If you don’t know anyone who trades the Forex market, you could also have a look at reviews for Forex brokers. Do take reviews with a grain of salt. Some of them are fake and others are just overly cynical.
CFDs are a simpler alternative to Forex pairs that some brokers offer. These contacts for difference are simply contracts to pay and get the difference arising from a transaction

The first step is to find a broker. Most brokers these days have demo accounts, so you can get acquainted with their trading platform. Using a demo account is a great way to learn without risking any money. Once you have signed up for a demo account and learned the ropes of Forex, the next step is to sign up for a real account. You will typically need to provide information about your identity, your e-mail address and a funding source for your account.
The best way to find a broker is through word of mouth from someone you trust. If you don’t know anyone who trades the Forex market, you could also have a look at reviews for Forex brokers. Do take reviews with a grain of salt. Some of them are fake and others are just overly cynical.
CFDs are a simpler alternative to Forex pairs that some brokers offer. These contacts for difference are simply contracts to pay and get the difference arising from a transaction

It is possible to open an account for as little as 10 units of currency. While brokers do allow this, it is not recommended. It is difficult to practice good trading habits like proper money and trade management with this small amount. You would need significant leverage even to open one trade. And this one investment would consume your entire $10 (or EUR or whatever). To provide more flexibility to practice good trading habits, it is recommended to deposit at least 5,000 units of currency

The ten most successful Forex traders and investors of all time are generally considered to be George Soros, Andrew Krieger, Stanley Druckenmiller, Bruce Kovner, Paul Tudor Jones, Bill Lipschutz, Urs Schwarzenbach, Michael Marcus, Joe Lewis, and Michael Steinhardt. Soros is famous for shorting 10 billion GBP in 1992, forcing the U.K. to withdraw from the European Exchange Rate Mechanism and profiting USD 1 billion. Andrew Krieger joined Banker’s Trust in 1986 and was immediately rewarded with an increased capital limit of USD 700 million. One Black Monday (October 19, 1987), he shorted the New Zealand dollar at a 400:1 leverage, taking a short position larger than the entire New Zealand money supply. His trade made his company USD 300 million in profit, of which he received $3 million. Druckenmiller made a 60% return shorting the German mark in 1980. Kovner once purchased $3,000 worth of soybeans on his MasterCard and ended up earning $23,000 on the deal, saying the ordeal taught him the importance of risk management. He later founded Caxton Corporation, which generated $14 billion at its zenith.

Trading with Forex brokers who are unregulated opens you up to a higher chance of fraud or monetary loss. Forex regulators are constantly monitoring the exchanges they oversee for fraudulent and high-risk practices. These regulators also can compensate investors in case of monetary loss if the broker goes out of business. Furthermore, being regulated shows that the broker is serious about your financial and personal information and willing to abide by the laws designed for regulated to keep you safe. So, even if an unregulated broker has sterling reviews, there are still very good reasons to avoid it or at least accept that you take some risk. A common case is a well known broker to have also an unregulated entity to offer to clients higher leverages, deposit bonus and other promotional perks that are not allowed in various jurisdictions

Forex trading itself is not a scam. It is a global market that countless billions are affected by each day. However, everything in this world that involves money or has the potential for monetary gain also attracts fraudsters and Forex trading is no exception. Always investigate Forex brokers that you are considering doing business with to ensure that they are legitimate. Forex and Forex brokers are sometimes viewed as scams because many people in the general public are not familiar with Forex and the bad news is all the news they hear about it.
Sometimes you will read reviews that say a particular broker is a scam artist. There may be truth to this, but there are also angry traders who blame all their failures on someone else. Forex trading is difficult and failure is not uncommon. So consider this when reading reviews like this instead of blindly accepting them as an unbiased opinion.

The most heavily-traded currency pair in Forex, by a wide margin, is the EUR/USD currency pair. There are several reasons for this, including:
high liquidity—it is almost always easy to find a buyer or a seller for EUR/USD so entering or exiting the market is quick and not difficult.
Spreads for EUR/USD is highly competitive, so unless there is a very significant economic news event happening, spreads will be low.
The E.U. and the U.S. feature two of the most transparent economies in the world. So, the fundamentals of the Forex pair are more or less out in the open with little doubt or mystery as to what is going on.

The most volatile Forex pair is the AUD/JPY pair (Australian dollar/Japanese Yen). The reason behind this volatility is that the Japanese Yen is heavily tied to the U.S. dollar. So, when the U.S. dollar or the U.S. stocks move, the Japanese Yen moves accordingly, while the Australian dollar stays more or less constant. Also, the Australian dollar is closely tied to the commodities market. This also creates a significant amount of volatility.

Forex brokers usually have two types of accounts, one with no commissions and low fees, and another type with commissions and no fees. The commission account has requirements such that it is only feasible for those who make a lot of trades or who have very large accounts. The pips are the spread, which varies from 1 to 2 pips for the most active Forex pairs to much more for exotics. These spreads can also vary according to the market conditions, which as when volume is high and liquidity is low. It depends upon your trading style and bankroll to determine which account type is best for you.

Forex trading is more or less legal in any country that has currency. There are, however, many countries that brokers choose for legal reasons not to allow accounts from. The most common of these countries include: Belarus, China, India, Iran, Saudi Arabia, Canada, Pakistan, South Korea, Japan, Turkey, and the U.S. In the case of the U.S. and Canada, Forex is in no way illegal, but they do have very strong regulations on what is allowed. In the case of Japan, they have rules forbidding Forex traders from using brokers who are not registered in Japan. China, India, South Korea, and Turkey have similar rules.

Forex trading itself is not a scam. It is a global market that countless billions are affected by each day. However, everything in this world that involves money or has the potential for monetary gain also attracts fraudsters and Forex trading is no exception. Always investigate Forex brokers that you are considering doing business with to ensure that they are legitimate. Forex and Forex brokers are sometimes viewed as scams because many people in the general public are not familiar with Forex and the bad news is all the news they hear about it.
Sometimes you will read reviews that say a particular broker is a scam artist. There may be truth to this, but there are also angry traders who blame all their failures on someone else. Forex trading is difficult and failure is not uncommon. So consider this when reading reviews like this instead of blindly accepting them as an unbiased opinion.

Forex trading is NOT a pyramid scheme. This is not to say that there are not scams related to Forex. There undoubtedly are just as there are with any enterprise that makes money. There are many reliable Forex brokers and many millions of Forex traders and investors. Some people succeed at Forex and obtain a good income from Forex trading. Forex is the largest and most liquid market in the world and it is definitely not a pyramid scheme.

A bank account is required to fund your Forex brokerage account. You can fund your account with a credit card deposit. You will still need to verify your identity and fulfill all the KYC (Know-Your-Customer) regulations that the broker may require for investors. And if the broker does turn out to be a scam, you will be glad that they only have access to your credit information and not the information for your checking account. Also some brokers allow wallets like skrill, Payoneer, PayPal, Stripe and the new Revolut, Monese and Transferwise to fund your account up to limited ammount

Central banks do participate in the Forex market by intervening in it. The goal of central banks, however, is not to make a profit. The goal is to influence the market to satisfy their monetary policies. These goals typically include maintaining stable prices and stimulating or curtailing economic growth. Central banks also manipulate the market by setting the interest rate, purchasing government securities and other means. The eventual result of all this manipulation is to increase or lower the value of the country’s currency in relation to another currency.