1. What is Forex and how is it different from other Markets?

The Currency Market, also known as the Forex Market (Foreign Exchange Market) is a market that does not have one regulating body.  It is traded all over the world and since it can be based anywhere in the world, there is no one body or country that makes the rules.  Contrary to what one might think, in terms of the Forex Market being a free for all, self-regulation works very well in this arena.   This is the most liquid and fluid market in the world and it is based on the fact that competition and cooperation are necessary for any trader or broker to succeed.   Interestingly, the lack of regulation means there is no such thing as insider trading and news that is leaked or learned by relationships with people “in the know” will not get a trader or broker penalized.  The lack of regulation unfortunately also paves the way for some unscrupulous activity so beware.

2. Is there a commission in Forex Trading?

Even though they are called brokers, Forex Trading Agents are really dealers.  There is a big difference in terms of the personal vested interest.  Stock brokers charge a commission, but Forex dealers make their money in the spread between the buying price and the asking price.  The dealer assumes part of the market risk but they do not charge commission.

3. In Currency Trading, what are you trading?

You do not actually hold the currency you are buying and selling.  Forex Trading is theoretical.  There is no physical exchange of actual currency.  All trading is done via computer and is speculative.  You can make a profit even though you do not hold the currency in your hand.  The results are real even if the currency is not.

4. Why Choose Forex?

Several different factors affect the decision to enter the Forex Market.  The most common reasons that traders choose to begin trading currency are the excitement and volatility of the market, the amount of leverage that is extended to Forex Traders, 24/5 plus opening hours of this market because it is global and the global nature of the market in general.  What is most interesting is that almost these benefits to the Forex Market can just as easily be looked at by some as detriments.

5. What currencies are traded most commonly?

The most commonly traded currency pairs are:

• EUR/USD (euro/dollar)
• USD/JPY (dollar/Japanese yen)
• GBP/USD (British pound/dollar)
• USD/CHF (dollar/Swiss franc)

6. What is a PIP?

PIPS are how movement in currency prices are measured.  They are the smallest increments of trade in Forex.  A PIP is the 4th digit after the decimal point, meaning 1/100th of 1%.  The only exception to this rule is the Japanese Yen which is measured only to the second digit after the decimal point.

7. How risky is Forex Trading?

All trading is risky.  The key to mitigating your risk is to have a well thought out, tried and tested strategy.  When a trader is using a strategy that has been proven to work, is well educated about Forex and understands the market, his risk is lowered.

Categories: Stock Market