What is FOREX Trading?
The FOREX market is an ‘over the counter market’ (OTC) which means there is no physical or centralised exchange. The FOREX market trades 24 hours a day via a network of banks, corporations and individuals.
Investors interested in trading in the FOREX markets must first sign up with either a regular broker or an online FOREX discount broker. Once an investor finds a broker, a margin account must be set-up. A FOREX margin account is very similar to an equities margin account – the investor is taking a short-term loan from the broker. The loan is equal to the amount of leverage the investor is taking on.
Positions can be opened and closed within minutes or can be held for months depending on the individual traders strategy.
Before the investor can place a trade, he or she must first deposit money into the margin account. The account that needs to be deposited depends on the margin percentage that is agreed upon between the investor and the broker. No interest is paid directly on this borrowed account, but if the investor does not close his or her position before the delivery date, it will have to be rolled over, and interest may be charged depending on the investor’s position (long or short) and the short-term interest rates of the underlying currencies.
Trade Breakdown by Currency Pair
Benefits of FOREX Trading
- World’s largest and most liquid financial market
- Markets open 24 hours a day
- Markets are low cost
- Market transparency offers an even playing field
- Cycles and trends in the market are easier to predict than the share market