Forex Frequently Asked Questions

When does Forex trading occur?
The first session, which is the Tokyo Session, begins each week on Monday morning in the Asia-Pacific region which is Sunday evening in the Americas. Trading continues non-stop moving into the London Session and on to the New York Session until all markets close on Friday afternoon.  
 
Is there a central location for the Forex Market?
Forex trading is not managed through an exchange. Since transactions are conducted between two counterparts, the FX market is an “inter-bank,” or over the counter (OTC) market.
 
Who participates in the FX market?
Central, commercial and investment banks have traditionally dominated the Forex market. Other market participation is rapidly increasing, and now includes international money managers and brokers, multinational corporations, registered dealers, options and futures traders, and private investors.
  
When is the FX market open for trading?
Forex is a true global 24-hour marketplace. The trading day begins in Sydney, and moves around the globe as each financial center comes to life. Tokyo follows, then London, and finally New York. Investors can respond in real time to any fluctuations caused by current economic, social and political events.
 
How fair is the Forex Market?
The Forex market is so large and is composed of so many participants that no one player, not even a large government, can completely control the long-term direction of the market. So, many experts have called Forex the “most level playing field” on earth.
 
What are the most common currencies in the Forex markets?
The most “liquid” currencies in the Forex market are those of countries with low inflation, stable governments, and respected central banks. Nearly 85% of daily transactions involve the major currencies, including the U.S. Dollar, Japanese Yen, the European Union Euro, British Pound, Swiss Franc, and the Canadian and Australian Dollars.
  
What is Margin?
Margin is a performance bond that insures against trading losses. Margin requirements in the FX marketplace allow you to hold positions much larger than the asset value of your account. Trading with WPP includes a pre-trade check for margin availability; the trade is executed only if there are sufficient margin funds in your account. The WPP trading system calculates cash on hand necessary to cover current positions, and provides this information to you in real time. If funds in your account fall below margin requirements, the system will close all open positions. This prevents your account from falling below your available equity, which is a key protection in this volatile, fast moving marketplace.
  
What are “short” and “long” positions?
Short positions are taken when a trader sells currency in anticipation of a downturn in price. Making this move allows the investor to benefit from a decline. Long positions are taken when a trader buys a currency at a low price in anticipation of selling it later for more. Making these moves allows the investor to benefit from changing market prices. Remember! Since currencies are traded in pairs, every forex position inevitably requires the investor to go short in one currency and long in the other.
  
What is the difference between an "intraday" and "overnight position"?
Intraday positions are all positions opened anytime during the 24 hour period after the close of Fx desk of WPP normal trading hours .Overnight positions are positions that are still on at the end of normal trading hours.
 
 
How is pricing determined for certain currencies?
The full range of economic and political conditions impact currency pricing. It is generally held that interest rates, inflation rates and political stability are top among
important factors. At times, governments participate in the forex market in order to influence the traded value of their currencies. These and other market factors such as very large orders can cause extreme relative volatility in currency prices. The sheer size of the forex market prevents any single factor from dominating the market for any length of time.
  
 
How can I manage risk?
The most common risk management tools in Forex trading are the stop-loss order and the limit order. The stop-loss order directs that a position be automatically liquidated at a certain price in order to guard against dramatic changes against the position. A limit order sets the maximum price that the investor is willing to pay in a transaction, as well as a minimum price to be received in exchange. The foreign exchange marketplace is so liquid that it is easy to execute stop-loss and limit orders.
  
What trading strategy should I use?
Both economic fundamentals and technical factors influence the decisions of currency traders. Those who follow economic fundamentals use government issued reports, current news, and broad economic trends to anticipate movements in price. Technical traders rely on trend lines, support and resistance levels, and a variety of charts and mathematical analysis to identify trading opportunities. Over time, the most significant price movements occur in close association with unexpected events. Perhaps the central bank changes rates without warning or an election puts an unexpected candidate in power. News from conflicts certainly impacts currency pricing. More often than not, it is the expectation of a certain event rather than the actual event that drives price pressures.
  
How often can trades be made?
As one might expect, trading activity on any particular day is dictated by current market conditions. Some small to medium size traders might make as many as 10 transactions in a day. By not charging commission and offering tight spreads, Washington Prime Plus Inc. investors can take positions as often as is necessary without concern for excessive transaction costs.
  
How long a position should be maintained?
 Forex traders generally hold positions until one of three criteria is met:
 1.        A sufficient profit has been realized from the position.
 2.        A pre-set stop-loss order is triggered.
 3.       A better potential position emerges and the trader needs to liquidate funds to take advantage of it.
  
How do margin calls work?
A margin call is generated when the equity balance in an account drops below the margin requirement for that size account. If the maximum allowable leverage has been exceeded, any open positions are immediately liquidated, regardless of the nature or size of the positions.
 
What is the difference of Forex from Futures?
As a potential investor it is important for you to understand the differences between cash Forex and currency futures. In currency futures, the contract size is predetermined. Futures traders exercise leverage by utilizing Margin to control a futures contract. (Margin is money deposited by both the buyer and the seller to assure the integrity of the contract.)
But with liquidity in mind, the futures market may seem limiting because the data flow comes to a stop at the end of the business day (just as it does with the stock market) thus disrupting your perception of the market. For some traders this could lead to a certain level of anxiety.
For example, if important data comes in from England or Japan while the U.S. futures markets are closed, the next day's opening could be witness to sharp movements..
In contrast to the futures market, the spot forex market is a 24-hour, continuous currency exchange that never closes. There are dealers in every major time zone, in every major dealing center (i.e., London, New York, Tokyo, Hong Kong, Sydney, etc.) willing to quote two-way markets. The size of this market, over one trillion dollars per day gives you near perfect liquidity. Because of the advantages of sheer volume and daily volatility, the excitement of this market is unparalleled.
 
Liquidity
The spot Forex market is a $1.4 trillion daily market, making it the largest and most liquid market in the world. This market can absorb trading volume and transaction sizes that dwarf the capacity of any other market. If you compare this to the $30 billion per day futures market it becomes clear that the futures markets provide only limited liquidity. The market is always liquid, meaning positions can be liquidated and stop orders executed without slippage.
 
24-Hour Market:
The forex market is a seamless 24-hour market. At 5:00 pm Sunday, New York time, trading begins as markets open in Sydney and Singapore. At 7:00 pm the Tokyo
market opens, followed by London at 2:00 am, and finally New York at 8:00 am. As a trader, this allows you to react to favorable/unfavorable news by trading immediately. It also gives traders the added flexibility of determining their trading day.
By comparison, the currency futures markets in the United States, such as the Chicago Mercantile Exchange and Philadelphia Exchange, have regulated hours. The CME, for instance, opens at 8:20 am New York Time and closes at 2:00 pm. Therefore, if important data comes in from England or Japan while the U.S. futures market is closed, the next day’s opening could be a wild ride.
 
Execution Quality and Speed:
The futures market is known for inconsistent execution, both in terms of pricing and execution time. Every futures trader has experienced a half hour wait for a market
order to be filled and has been executed at a price far away from where the market was supposed to be trading. Even with electronic trading and limited guarantees of execution speed, the price for fills on market orders is far from certain. This does not happen in Forex market. On the currency trading station, traders execute directly off real time streaming prices. There is no discrepancy between the displayed price and the execution price. This holds true even during volatile times and fast moving markets. In the futures market, execution is uncertain because all orders must be done on the exchange. This creates a situation where liquidity is limited by the number of participants, which in turn limits quantities that can be traded at a given price. Real time streaming prices ensure that market orders, stops, and limits are executed without slippage and/or partial fills.
 
In the forex market traders must pay a spread and a commission. All traded financial products have a bid (buy) price, and ask (sell) price, with the difference defining the spread, or cost of execution. Up until recently, lack of transparency in the futures market has disguised the spread. Now online trading platforms, which show the depth of the market by including both the buy and sell price, allow traders to see the real cost of the trade. Because the currency market offers round-the-clock liquidity, traders receive tight; competitive spreads both intra-day and night. Futures traders are more vulnerable to liquidity risk and typically receive wider dealing spreads, especially during after hours trading.
 
Many Forex Brokers charge no commission or transaction fees to trade currencies online or over the phone. The over-the counter structure of the currency market eliminates exchange and clearing fees, which in turn lowers transaction costs. Costs are further reduced by the efficiencies created by a purely electronic market place that allows clients to deal directly with the market maker, eliminating both ticket costs and middlemen. All clients have access to deal able bid/ask quotes. In the futures market the prices represent the last trade, not necessarily the price for which the contract will be filled. This lack of transparency hides the true cost of the trade.
 
In the spot Forex market, traders can see the value of their positions and account equity move up and down with the market in real time. The key information for every account is re-calculated and updated every time the exchange rates change. Traders have immediate access to detailed information regarding every open position, open order, and the generated P/L per trade. Traders also have 24-hour access to full, real time snapshots of their account statement since inception, or on a daily, weekly, monthly or yearly basis. As a trader this means you never have to approximate your account equity or be uncertain in regards to available margin.
 
 Margin / Risk Management:
 
For the purpose of risk management, traders must have position limits. This number is set relative to the money in a trader’s account. Risk is minimized in the Spot FX market because the online capabilities of the trading platform will automatically generate a margin call if the required margin amount exceeds the dollar value of the account as a result of trading losses. All open positions will be closed immediately regardless of the size or the nature of positions held within the account. If futures market moves against you your position may be liquidated at a loss and you will be liable for any resulting deficit in the account when using Forex Brokers.