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  • Frequently Asked Question

    FAQs are the most common questions related to the Forex market and trading on it. Let’s take a look at these issues. It may well be that it is with them that your career in the currency market will begin.

    What is Forex and how is it Different from the Stock Market?

    Forex is an international currency market that produces free currency trade. The main difference from the stock market (exchange) is that Forex trades in currency, and on the exchange securities. In addition, Forex operates 24 hours a day throughout the working week and has no specific physical address.

    Where is Forex Located?

    The Forex market does not have a specific location. Unlike trading on the stock market, which takes place on special exchanges, all Forex transactions are carried out by phone or the Internet.

    How much Money do You need to Start Trading forex?

    With some Forex brokers, you can start trading in the Forex market already with $1. Usually, the minimum amount ranges from $100 to $10,000 ($100,000 or more for trading on the interbank market).

    Who Such Trader?

    A trader is a person who profits from speculative transactions with certain financial instruments. At the international Forex currency exchange, traders implement the purchase and sale transactions of certain currencies and receive income from the difference in their quotes.

    At the moment, everyone who understands something in finances has the opportunity to take part in Forex trading and make profit from operations with various instruments. Trading is one of the most sought-after professions in modern reality. Exchange trading embodies both exact science and the creative process, which makes this business accessible and interesting to everyone. Having become acquainted with the basics of trading on the exchange, anyone has the opportunity to succeed, regardless of age, education and gender. You can try and make sure of this on a demo account.

    Why do you Need Forex Broker?

    A broker is a link between traders and commercial banks. Brokers provide services to traders to receive and withdraw funds, perform commercial transactions, provide analytical and information support, as well as provide credit to traders on the pledge of contributed funds. To train traders, brokers offer to use free demo accounts, which allow to develop certain skills and experience. An independent broker rating helps aspiring traders decide on his choice.

    What is Trading Terminal?

    A trading terminal is a software complex by which a brokerage company provides a trader with market access. It is thanks to the terminal and the Internet, which has already penetrated almost all spheres of life, that trading in the currency market is so simple and accessible. Currently, the most famous trading terminal is MetaTrader and its Web version.

    What is Spread?

    The difference between the sales price (Bid) and the purchase price (Ask) is called the spread. It is considered in points and represents a broker’s commission for each opening of the transaction. There are three types of spread: floating, fixed, and fixed with an extension. For trading on daily charts, the size of the spread does not matter, and for intraday trading brokers with a low spread are best suited.

    What is Swap?

    Swap is also called rover and overnight – an operation to move an open item to the next day, for which the investor receives or pays interest. Virtually all transactions carried out in the foreign exchange market and under contracts with different exchange rates (CFD) include swaps.

    What is Order?

    Forex Currency Market Order is a request from a client or company that acts on its behalf to perform a trading transaction. There are two types of orders:

    • A market order is an order to buy or sell an asset at the current price and time. The result of the execution of this order is a transaction concluded at the best (next) possible market price. Assets are bought at Ask price and sold at Bid price.
    • A deferred order is a order to buy or sell an asset at a predetermined price in the future. Setting a pending order does not require opening a position at the moment, but rather when a certain price level is reached. Deferred orders are divided into two groups: Buy stop/Sell stop and Buy limit/Sell limit.

    Buy limit – is an order to buy at a better (lower) price than the one that is currently available. The idea behind the order is that the trader hopes that the price of the asset will fall to a certain level (rollback) and then rise higher.

    Sell limit – is a purchase order at a better (higher) price than the one currently available. The idea behind the order is that the trader hopes the asset’s price rises to a certain level and then drops.

    Buy stop – is a order to buy an asset at a higher price than the one currently available. The Buy stop order is set at a price level that is higher than the current asset price and works when the level breaks higher, in anticipation of further price increases.

    Sell stop – is a order to sell an asset at a lower price than the one currently available. The Sell stop order is set at a price level that is lower than the asset’s current price and works when the level breaks down, in anticipation of a further price drop.

    Important types of Forex orders are orders that allow you to limit a potential loss or pick up a profit earned by a trader: Stop Loss and Take Profit.

    Stop loss – is set at a higher (for sales transactions) or lower (for purchase transactions) price level than the order opening price to limit potential loss. When the price reaches the Stop loss level, the position will be automatically closed with the loss initially defined in the Stop Loss order.

    Take Profit – is set at a higher (for purchase transactions) or lower (for sales transactions) price level than the price of opening a order for potential profit. When the price reaches the Take Profit level, the position is automatically closed by the profit initially determined in the Take Profit order.

    What is Point?

    A point (pip) is understood to mean the most insignificant change in the value of the selected asset, the role of which in Forex is usually played by one or another currency pair. For example, if it is said that one of the most popular currency instruments – EUR / USD, has changed its value from 1.1350 to 1.1349, then the trader knows that the euro-dollar pair fell by 1 point.

    What is Lot?

    Trading lot in Forex currency market is a unit of measurement of volume of trading instruments. Standard lot on Forex, that’s 100,000 currency units. For example, we take a couple of Euro/Dollar. We open a long position for 1 lot and buy 100 thousand euros for dollars. This is one lot. And if, for example, we sell euros, i.e. open a short position in three lots, then we sell 300 thousand euros.

    Forex brokers offer several options for trading lots:

    • Standard lot – is 100 thousand units of currency;
    • Mini-lot – 0.1 standard lot or 10 thousand units of currency;
    • Micro-lot – 0.01 standard lots or 1 thousand units of currency.

    These lots are made just for the convenience of traders with a very different level of capital. Agree, not everyone has $100,000 to buy one trading lot, but if you buy mini and micro lots, then trade becomes available for deposits starting at $100.

    What is Leverage?

    Leverage – is the main tool thanks to which even the smallest investor with only a few dollars can trade on forex. Leverage is the ratio between the amount of collateral and borrowed funds allocated to it: 1:50, 1:100, 1:200. A 1:100 leverage means you need to have 100 times less than the transaction amount in the broker’s trading account to make a transaction. For example, you buy 1.0 lot GBP/USD. With a leverage of 1:100, the required margin will be $1000, at 1:200 – $500, and at 1:50 – $2000, but the value of the point does not change from this.

    What is Margin?

    Forex margin is designed to maximize profits in the foreign exchange market, forex margin trading with the successful development of events significantly increases the profitability of trader transactions. Forex margin implies that for trading, a broker provides his client with a leverage or otherwise, it is also called a brokerage leverage. The amount of the deposit for which a loan is granted is called forex margin. The amount of leverage each broker sets on their own, usually it varies from 10 to 500, for example, you open a deposit of $100 with a leverage of 1:500, now to trade you available $50,000, it is clear that to trade with this amount is much nicer.

    What does the Position «Long» or «Short» mean?

    Long is the opening of a position in which a trader buys a currency at one price, suggesting later to sell at a higher price. In this case, the investor makes profit from a growing market.

    Short is the opening of a position in which a trader sells a currency in anticipation of its fall. In this case, the investor makes profit from a falling market. However, it is important to remember that each forex position requires the investor to stand in the «long» for one currency, and in the «short» in another.

    What is Margin Call and Stop Out?

    Margin Call is a warning from a broker to a trader about a small amount of free funds. The trader’s transactions can go into the minus so much that there may be very little funds to secure collateral under them. Then the broker will require to replenish the deposit or close part of the transactions. If the trader does nothing and the minus on transactions continues to grow, a stop out will occur.

    Stop Out is the forced closing of trader transactions by a broker. Closing trades may be full or partial. The broker does this because he does not want to be responsible for the open trades of the trader. It is the responsibility of the trader to provide collateral for his transactions.

    The sizes of margin call and stop out are set as a percentage of the deposit and are always indicated on the broker’s website. Before you start trading with a particular broker, you should ask about the size of these tools.

    What is Trailing Stop?

    When you set a trailing stop (for example, by X points), the following happens: the terminal does not take any action until the position reaches profit by X points (indicated value of the trailing stop). After that, the terminal sets a stop-loss at a distance of X points from the current price (in this case, at the breakeven level). When receiving a quote at which the distance between the current price and the placed stop-loss exceeds X points, the terminal sends a command to change the stop order at the distance X points from the current price. I.e. Stop-loss «follows» to the current price for distance X points. Thus, the trailing stop is a certain algorithm of stop-loss control – «movement following the price in profit».

    Attention! Trailing stop works only when your trading terminal is working and connected to the server via the Internet.

    What is Cross Rate?

    Cross rate is one of the currency pairs that does not include the American dollar. The cross rate is expressed in the ratio of each currency to the US dollar. Example: EUR/CAD starts a growth movement, respectively EUR/USD is growing faster than the CAD/USD currency pair.

    What is Liquidity?

    The term сliquidity» in exchange trading refers to the activity of exchange participants in terms of transactions with exchange instruments. It should be understood that the more exchange participants takes part in the trading process with an exchange instrument, the correspondingly this instrument has more liquidity. The largest liquidity in the exchange space is held by instruments that are in daily demand from millions of participants.

    Liquidity providers are major market participants, you can even say its top, which are the driving force of the entire market. They combine among themselves all the forces of market supply and demand and give out their instant consensus. Liquidity providers usually mean first-tier banks, such as Deutsche Bank, Barclays Capital, Morgan Stanley, etc. Rather, it is the so-called elite of liquidity providers. Of course, there are other providers of liquidity, but it is to them that the roots of all kinds of counterparties, which are used by small brokers and all kinds of investment funds, go back.

    What is Volatility?

    Volatility is a characteristic that determines the strength of a change in the value of an asset (currency, product, stock, etc). In other words, volatility is the amplitude of price fluctuations, the difference between the highest and lowest prices. Volatility is measured in % of the asset price. 1-2% is low volatility, 10% and higher is big volatility.

    Let’s review an example. Of course, we all know what is cryptocurrency and this cryptocurrency has very high volatility because the course is affected by supply and demand, the emergence of new cryptocurrencies, and floating countries’ loyalty to this type of digital money. As a result, we see a special lack of trust of the state and ordinary citizens in the crypto industry.

    What is Diversification?

    Diversification is one way to protect capital, but diversity should also be a measure. Suppose a trader simultaneously opened up positions in too many different markets. It may happen that the profit from one or two successful transactions will not be able to compensate for losses on other positions. It is always necessary to find a reasonable compromise between diversification and concentration. Sometimes traders concentrate funds in only a few markets and get good profits. This is quite acceptable, in any case, if these markets show a pronounced focus. There is no single answer to the extent to which capital should be diversified.

    Which Currencies are Most often Traded on Forex?

    Most often, «liquid» currencies are used in trading – these are the currencies of countries with stable governments, responsible central banks, and low inflation. Currently, more than 85% of daily trading falls on major currencies: US Dollar , Japanese Yen , Euro , British Pound , Swiss Franc , Canadian and Australian Dollar .

    How to Reduce Risks?

    The most valuable tools for risk management are the orders «limit order» and «stop loss order». «Limit order» limits the maximum price that will be paid, or the minimum price that will be received upon completion of the transaction. «Stop loss order» guarantees the automatic liquidation of a certain position when the price reaches a predetermined level in order to limit potential losses if the market moves against the position of the investor. The liquidity of the Forex market increases the chance of the execution of orders «limit order» and «stop loss order».

    Does Forex work under the same laws as the Stock Market?

    Not. If in the stock market you can make profit only when prices rise (with the exception of hedging mechanisms), then in the Forex market you earn not only when prices rise, but also when prices fall.

    What is ECN?

    ECN (Electronic Communication Network) is an electronic communication network through which applications for the buy/sell of trading instruments of retail clients trading on ECN, as well as large banks and brokers, are displayed. One of the most important arguments in favor of an ECN account is that customer positions are directly transferred to liquidity providers (Straight Through Processing or STP), and the ECN broker does not interfere with the trading process.

    Can I Quickly learn to Work on Forex?

    It is possible. Although many study Forex all conscious life. If you want trading to become your profession, it needs to be done seriously.

    What is Demo Account?

    Demo account – a virtual trading account. Designed to study the trading terminal, study and develop trading strategies, obtain sustainable trading skills without the risk of losing real money.

    How long can I use a Demo Account?

    The validity period of a demo account is unlimited. However, if you have a demo account open, but you have not made any trading operations on it for 30 days, then this demo account will be closed. You can open a new demo account at any time in the Accounts section – Open an account in the trading platform MetaTrader 4.

    What is Short Position Covering?

    A term that is used to refer to the reverse purchase of previously sold contracts or shares, called short item coverage. Coverage, or liquidation, of short positions is carried out if the market participant no longer expects a fall in the prices of the respective contracts.

    Who is a Forex Broker?

    Forex broker is a company that carries out the technical conduct of your transactions and displays your orders on opening and closing positions, on placing orders directly on world financial markets. A brokerage company provides you with software and offers favorable trading conditions on various types of accounts. For comfortable work on Forex, each trader just needs to find a reliable broker and open a trading account in the company.

    Where Does the Profit come from?

    Principle is very simple: buy cheaper – sell more expensive. And vice versa: sell more expensive – buy cheaper. Exchange rates are constantly changing, and you can always make good money on this difference. The fact is that many large traders do not play, but only fulfill orders of large clients – trading organizations, banks, financial institutions, which for some reason, just need to transfer one currency to another. And what exactly is the course on the market, they absolutely do not care, that is, de facto they are ready to give money to those who constantly trade on Forex.

    How are Currency Quotes Formed?

    Currency quotes are influenced by various economic and political conditions, but perhaps the most important of them are interest rates, inflation, and political stability. Sometimes governments act as participants in the Forex market, influencing exchange rates by legislative methods. They can also fill the market with their currency in an attempt to lower its price or, conversely, buy – if they wish to increase it. This behavior is known as the Central Bank intervention. Any of these factors, as well as a large number of market transactions, can cause increased volatility of quotes. However, the size and volume of the market does not allow anyone to manage it for a long time.

    What Kind of Trading Strategy should I Use?

    Currency traders make decisions using technical and fundamental analysis. Traders using technical analysis to identify trading trends use charts, trend lines, support and resistance levels, a lot of patterns and mathematical schemes, while traders using fundamental analysis predict quotes moving, interpreting various economic information, including news, issued government statistics and even rumors. However, the most powerful movement of quotes is given by unexpected events, which may come from the Central Bank raising interest rates due to political elections or even war. However, more often than not, the expectation of an event has a greater impact than the event itself.

    What are Forex Advisors?

    Forex Advisers are specially designed programs for automatic work on Forex, which make it possible to carry out transactions without human intervention. All you need is to understand the settings of your adviser, set the necessary parameters, according to which the robot will act and receive profit. So, the adviser automatically monitors trends in a specific period of time. Forex adviser uses indicators or other analyzers, the adviser itself considers and compares various market conditions and factors, after which, based on its analysis, the adviser opens trades, and all this is absolutely automatic.

    What is Trading Instrument?

    These are any market assets available for trading in a company in which you have a trading account, including currencies, CFD contracts for securities, commodity assets, interest rates and debt instruments, indices, basic and precious metals.

    What are Forex Advisors?

    Forex Advisers are specially designed programs for automatic work on Forex, which make it possible to carry out transactions without human intervention. All you need is to understand the settings of your adviser, set the necessary parameters, according to which the robot will act and receive profit. So, the adviser automatically monitors trends in a specific period of time. Forex adviser uses indicators or other analyzers, the adviser itself considers and compares various market conditions and factors, after which, based on its analysis, the adviser opens trades, and all this is absolutely automatic.

    What is Arbitrage?

    Arbitrage – a type of trading with minimal risk. The same currency is simultaneously bought and sold against the other from two counterparties for profit due to the difference in prices.