The four major forex exchanges are located in New York, London, Singapore and Tokyo. When more than one exchange is simultaneously open, this not only increases trading volume, it also spikes volatility (the extent and rate at which equity or currency prices change), which likewise benefits forex traders. This may seem paradoxical. After all, investors generally fear market volatility. But in the forex game, greater volatility translates to greater payoff opportunities.
Leveraged trading in foreign currency contracts or other off-exchange products on margin carries a high level of risk and may not be suitable for everyone. We advise you to carefully consider whether trading is appropriate for you in light of your personal circumstances. You may lose more than you invest (except for OANDA Europe Ltd customers who have negative balance protection). Information on this website is general in nature. We recommend that you seek independent financial advice and ensure you fully understand the risks involved before trading. Trading through an online platform carries additional risks. Refer to our legal section here.
When you trade forex, you're effectively borrowing the first currency in the pair to buy or sell the second currency. With a US$5-trillion-a-day market, the liquidity is so deep that liquidity providers—the big banks, basically—allow you to trade with leverage. To trade with leverage, you simply set aside the required margin for your trade size. If you're trading 200:1 leverage, for example, you can trade £2,000 in the market while only setting aside £10 in margin in your trading account. For 50:1 leverage, the same trade size would still only require about £40 in margin. This gives you much more exposure, while keeping your capital investment down.
The foreign exchange ("forex" or "FX") currency market is not traded on a regulated exchange like stocks and commodities. Rather, the market consists of a network of financial institutions and retail trading brokers which each have their own individual hours of operation. Since most participants trade between the hours of 8:00 a.m. and 4:00 p.m. in their local time zone, these times are used as the market open and close times, respectively.
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There are many factors that can impact – or potentially impact – currency market prices. Such factors include economic and political events and announcements, interest rates, inflation levels and natural disasters – among others. There’s no sure-fire way to predict price movements, but some handy hints can be gleaned through the analytical techniques implemented and shared by trading analysts.
The modern foreign exchange market began forming during the 1970s. This followed three decades of government restrictions on foreign exchange transactions under the Bretton Woods system of monetary management, which set out the rules for commercial and financial relations among the world's major industrial states after World War II. Countries gradually switched to floating exchange rates from the previous exchange rate regime, which remained fixed per the Bretton Woods system.
So, what’s the difference between the successful traders and the broke traders? Discipline. So many traders get into the space because it’s sexy to make a ton of money in a few hours. They are lured in by the potential of great rewards. Unfortunately, these folks have no strategy, they just jump in. The strongest traders take their losses, but more than make up for them through their successful trades due to their strategy and discipline.
A spot transaction is a two-day delivery transaction (except in the case of trades between the US dollar, Canadian dollar, Turkish lira, euro and Russian ruble, which settle the next business day), as opposed to the futures contracts, which are usually three months. This trade represents a “direct exchange” between two currencies, has the shortest time frame, involves cash rather than a contract, and interest is not included in the agreed-upon transaction. Spot trading is one of the most common types of forex trading. Often, a forex broker will charge a small fee to the client to roll-over the expiring transaction into a new identical transaction for a continuation of the trade. This roll-over fee is known as the "swap" fee.
In the futures market, futures contracts are bought and sold based upon a standard size and settlement date on public commodities markets, such as the Chicago Mercantile Exchange. In the U.S., the National Futures Association regulates the futures market. Futures contracts have specific details, including the number of units being traded, delivery and settlement dates, and minimum price increments that cannot be customized. The exchange acts as a counterpart to the trader, providing clearance and settlement.