in the foreign currency exchange (or “forex”) market need to understand fully the market and its unique characteristics. Forex trading can be very risky and isnot appropriate for all investors. It is common in most forex trading strategies to employ average. Leverage entails using a relatively small amount of capital to buy currency worth many time the value of that capital. Leverage magnifies minor fluctuations in currency markets gains and losses. By using leverage to trade forex, you risk los in all of your initial capital and also even more money than the amount of your initial capital. You should carefully consider your own financial situation, consult a financial adviser knowledge forex trading, and investigate any firms offeringto trade forex for you before making any investment. Background: Foreign Currency Exchange Rates, Quotes, and Pricing A foreign currency exchange rate is a price the presents how much it costs to buy the currency country using the currency of another country. Currency traders buy and sell currencies through forex transactions based on how they expect currency exchange rates will fluctuate. When the value of one currency rises relative to another, traders will earn profits if they purchased the suffer losses if they sold the appreciating currency. As discussed below, there are also other factors that can reduce a trader’s profits even if that trader “picked” the right currency. Currencies are identified by three-letter abbreviations. For example, USD is the designation for the U.S. dollar, EUR is the designation for the Euro, GBP is the designation for the British pound, and JPY is the designation for the Japanese yen. Forex transactions are quoted in pairs of currencies
(e.g., GBP/USD) because you are purchasing one currency with another currency. Sometimes purchases and sales are done relative to the U.S. dollar, similar the way that many stocks and bonds are priced in U.S. dollars. For example, you might buy Euros us in U.S. dollars.
In other types of forex transactions, on buy Euros using British pounds – that is, trading both the Euro and the pound in a single transaction. For investors whose local currency is the U.S. dollar (i.e., positive bet on the Euro (an expectation that the Eura positive bet on the Euro and a negative bet on Generally speaking, there are three ways to trade foreign currency exchange rates On an exchange that is regulated by th Commodity Futures Trading Commission Chicago Mercantile Exchange, which offers currency and options on currency futures.
products. Exchange-traded currency futures and options provide traders with contracts of a set unit size, a fixed expiration date, and centralized clearing. In centralized clearing, a clearing corporationacts as single counterparty to every transaction and guarantees the completion and credit worthiness of all transactions On an exchange that is regulated by the Exchange Commission (SEC). An example of exchange is the NASDAQ
OMX PHL formerly the Philadelphia Stock Exchange which offers options on currencies i.e., the right but not the obligation to buy or sell a currency at a specific rate within a specified
Exchange-traded options on currencies also provide investors with contracts of a set unit size, fixed expiration date, and centralized clearing. In the off-exchange market. In the off-exchange market (sometimes called the over-the counter or OTC, market an individual investor trades directly with a counterparty, such as a forex broker or dealer; there is no exchange or center house. Instead, the trading generally is conducted by telephone or through elect ronihe investor relies entirely on the counterparty to receive funds or to be able to trade out of a position. use the forex markets to manage the risks associated use the forex markets to manage the risks associated with fluctuations in currency risk of loss for individual investors who trade
rex contracts can be substantial. use the forex markets to manage the risks associated with fluctuations in currency rates. The risk of loss for individual investors who trade forex contracts can be substantial. The only funds that you should put at risk when speculating in foreign currency are those funds that you can afford to lose entirely, and you should always be aware that certain strategies may result in your losing even more money than the amount of your initial investment. Some of the key risks involved include: funds or to be able to trade out of a position.
• Quoting Conventions Are Not Uniform. While many currencies are typically quoted against the U.S. dollar (that is, one dollar purchases a specific amount of a foreign currency), there are no required uniform quoting conventions in the forex market. Both the Euro and the British pound, for example, may be quoted in the reverse, meaning that one British pound purchases a specified amount of U.S. dollars (GBP/USD) and one Euro purchases a specified amount of U.S. dollars(EUR/USD). Therefore, you need to pay special attention to a currency’s quoting convention and what an increase or decrease in a quote may mean for your trade Transaction Costs May Not Be Clear.
Before deciding to invest in the forex market, check with several different firms and compare their charges as well as their services. There are very limit addressing how a dealer charges an investor for the forex services the dealer provides or how much the dealer can charge. Some dealers charge a per-trade commission, while others charge amark -up by widening the spread between the bid and ask prices that they quote to investors. When dealer advertises a transaction as “commission free, you should not assume that the transaction will be executed without cost to you.
Instead, the dealer’s commission may be built into a wider bid-ask spread, and it may not be clear how much of the spread is the dealer’s mark-up. In addition, some dealers may charge both a commission and a mark-up. They may also charge a different mark up for buying a currency than selling it. Ready our agreement with the dealer carefully and make