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FAQ

What is Foreign Exchange?

The Foreign Exchange market, also referred to as the "Forex" or "FX" market, is the largest financial market in the world, with a daily average turnover of approximately US$1.5 trillion. Foreign Exchange is the simultaneous buying of one currency and selling of another. The world's currencies are on a floating exchange rate and are always traded in pairs, for example Euro/Dollar or Dollar/Yen.

Where is the central location of the FX Market?

FX Trading is not centralized on an exchange, as with the stock and futures markets. The FX market is considered an Over the Counter (OTC) or 'Interbank' market, due to the fact that transactions are conducted between two counterparts over the telephone or via an electronic network.

Who are the participants in the FX Market?

The Forex market is called an 'Interbank' market due to the fact that historically it has been dominated by banks, including central banks, commercial banks, and investment banks. However, the percentage of other market participants is rapidly growing, and now includes large multinational corporations, global money managers, registered dealers, international money brokers, futures and options traders, and private speculators.

When is the FX market open for trading?

A true 24-hour market, Forex trading begins each day in Sydney, and moves around the globe as the business day begins in each financial center, first to Tokyo, then London, and New York. Unlike any other financial market, investors can respond to currency fluctuations caused by economic, social and political events at the time they occur - day or night.

What are the most commonly traded currencies in the FX markets?

The most often traded or 'liquid' currencies are those of countries with stable governments, respected central banks, and low inflation. Today, over 85% of all daily transactions involve trading of the major currencies, which include the US Dollar, Japanese Yen, Euro, British Pound, Swiss Franc, Canadian Dollar and the Australian Dollar.

Is Forex trading capital intensive?

No. EFX requires a minimum deposit of $2,000. EFX allows customers to execute margin trades at up to 50:1 leverage. This means that investors to execute trades up to $100,000 with an initial margin requirement of $2,000. However, it is important to remember that while this type of leverage allows investors to maximize their profit potential, the potential for loss is equally great. A more pragmatic margin trade for someone new to the FX markets would be 5:1 or even 10:1, but ultimately depends on the investor's appetite for risk.

What is Margin?

Margin is essentially collateral for a position. If the market moves over a customer's position, EFX will request additional funds through a "margin call." If there are insufficient available funds, EFX will immediately close out the customer's open positions.

What does it mean have a 'long' or 'short' position?

In trading parlance, a long position is one in which a trader buys a currency at one price and aims to sell it later at a higher price. In this scenario, the investor benefits from a rising market. A short position is one in which the trader sells a currency in anticipation that it will depreciate. In this scenario, the investor benefits from a declining market. However, it is important to remember that every FX position requires an investor to go long in one currency and short the other.

What about terms like "bid/ask", "spread", and "rollover"?

EFX has an extensive Glossary that provides detailed definitions of all Forex related terms.

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 EFX's normal trading hours at 4:30pm EST. Overnight positions are positions that are still on at the end of normal trading hours (4:30pm EST), which are automatically rolled by KFX at competitive rates (based on the currencies interest rate differentials) to the next day's price.

How are currency prices determined?

Currency prices are affected by a variety of economic and political conditions, most importantly interest rates, inflation and political stability. Moreover, governments sometimes participate in the Forex market to influence the value of their currencies, either by flooding the market with their domestic currency in an attempt to lower the price, or conversely buying in order to raise the price. This is known as Central Bank intervention. Any of these factors, as well as large market orders, can cause high volatility in currency prices. However, the size and volume of the Forex market makes it impossible for any one entity to "drive" the market for any length of time.

How do I manage risk?

The most common risk management tools in FX trading are the limit order and the stop loss order. A limit order places restriction on the maximum price to be paid or the minimum price to be received. A stop loss order ensures a particular position is automatically liquidated at a predetermined price in order to limit potential losses should the market move aKFXst an investor's position. The liquidity of the Forex market ensures that limit order and stop loss orders can be easily executed.

What kind of trading strategy should I use?

Currency traders make decisions using both technical factors and economic fundamentals. Technical traders use charts, trend lines, support and resistance levels, and numerous patterns and mathematical analyses to identify trading opportunities, whereas fundamentalists predict price movements by interpreting a wide variety of economic information, including news, government-issued indicators and reports, and even rumor. The most dramatic price movements however, occur when unexpected events happen. The event can range from a Central Bank raising domestic interest rates to the outcome of a political election or even an act of war. Nonetheless, more often it is the expectation of an event that drives the market rather than the event itself.

How often are trades made?

Market conditions dictate trading activity on any given day. As a reference, the average small to medium trader might trade as often as 10 times a day. Most importantly, by not charging commission, EFX customers can take positions as often as necessary without worrying about excessive transaction costs.

How long are positions maintained?

As a general rule, a position is kept open until one of the following occurs:

realization of sufficient profits from a position;

the specified stop-loss is triggered;

another position that has a better potential appears and you need these funds.

What do I have to learn before trading?

Please read the “Notice to Traders” carefully.

Who will be responsible for Internet or Wireless failures?

Since EFX does not control signal power, its reception or routing via Internet, configuration of your equipment or reliability of its connection, we cannot be responsible for communication failures, distortions or delays when trading on-line (via Internet or Mobile services).

Who will be responsible for the Quoting and Execution Errors?

Should quoting and/or execution errors occur, which may include, but are not limited to, a dealer’s mistype of a quote, a quote or trade which is not representative of fair market prices, an erroneous price quote from a Trader, such as but not limited to a wrong big figure quote or an erroneous quote due to failure of hardware, software or communication lines or systems and/or inaccurate external data feeds provided by third-party vendors, EFX will not be liable for the resulting errors in account balances. In addition, orders must be placed allowing sufficient time to execute, as well as, sufficient time for the system to calculate necessary margin requirements. The execution or orders placed too close to prices, which would trigger other orders (regardless of order type) or a margin call, cannot be guaranteed. EFX will not be liable for the resulting margin call, resulting balance, and/or positions in the account due to the system not having been allowed sufficient time to execute and/or calculate accordingly. The foregoing list is not meant to be exhaustive and in the event of a quoting or execution error, EFX reserves the right to make the necessary corrections or adjustments on the account involved. Any dispute arising from such quoting or execution errors will be resolved by EFX in its sole and absolute discretion. Trader agrees to indemnify and hold EFX harmless from all damages or liability as a result of the foregoing.

How about the Arbitrage?

Internet, connectivity delays, and price feed errors sometimes create a situation where the prices displayed on EFX’s Trading Station and any other licensed trading platforms (hereinafter referred to collectively as "EFX Trading Station"), do not accurately reflect the market rates. The concept of arbitrage and "scalping", or taking advantage of these Internet delays, cannot exist in an OTC market where the client is buying or selling directly from the market maker. EFX does not permit the practice of arbitrage on the EFX Trading Station. Transactions that rely on price latency arbitrage opportunities may be revoked. EFX reserves the right to make the necessary corrections or adjustments on the account involved. Accounts that rely on arbitrage strategies may at EFX's sole discretion, without prior notification, be subject to dealer intervention and dealer approval of any orders and/or termination of trader’s account. Any dispute arising from such arbitrage and /or manipulation will be resolved by EFX in its sole and absolute discretion. EFX reserves the right to withhold withdrawal until such matters are resolved. Any action or resolution stated herein shall not waive or prejudice any rights or remedies which EFX may have against you, your company and its officers, all of which are expressly reserved

I am interested in foreign exchange trading, but would like some additional information. Any suggestions? In The Forex Market section we describe the foreign exchange market in some detail. In order to EFX a practical understanding of foreign exchange trading, there is no better way than to open a demo account, where you can experience what it's like to trade the Forex market without risking any capital.

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