The Forex market operates 24 hours per day 5 days per week. It has the largest volume of trading activity in the world, with over $3 trillion worth of trades taking place every day on average. The liquidity of this market, and the ease with which new traders can open accounts is attracting more and more novices.
It’s Easy to Open a Forex Trading Account
Many traders, otherwise less-politely known as speculators, are opening foreign currency trading accounts at brokers such as FXCM, Deutsche Bank, and Interbank with very small amounts of capital. Some of these accounts can be opened with as little as $25, and brokers regularly offer demo accounts with $50,000 in “play money” that can be traded live as if it were real money. Traders then have the opportunity to learn the system, and develop trading plans.
Forex Trading Accounts Use Leverage
Unlike stock trading, participants can control a large amount of currency with little amounts of cash, and this is termed “using leverage”. In the United States, there are regulatory reforms which will limit leverage greatly, to about a 10-to-1 ratio as opposed to the current 100-to-1 or even 400-to-1 ratios on some micro-accounts. This is causing some Forex traders to move their accounts overseas to countries without such regulations. There is danger in using leverage, as accounts can be wiped out quicker due to margin calls, but in general, the large leverage is exactly why trading currency can make a trader so much money.
Common Currency Pairs
The most active currency pair is the EUR/USD (buying the Euro using U.S Dollars). This is followed by USD/JPY (Japanese yen). Because they are so liquid, these pairs trade with low spreads and with relatively low volatility compared to the less active pairs. This makes them excellent choices for anyone new to this type of trading to hone their skills.
Its All About the Pips in Forex Trading Accounts
Price movement in Forex is measured in units referred to as “pips”, which are 1/100th of a penny for USD based currency pairs. For example, in a price move from $2.6703 to $2.6704, there has been a one pip increase in price. Traders try to “capture pips”, and many are content with capturing 20-30 pips on a daily basis, with 100 pips per day being outstanding.
Forex trading is catching on due to its very mild entry requirements and loose regulatory environment, although this is changing due to the recent financial crises. There are dozens of websites that cover Forex trading in-depth, including free training on technical analysis and strategies to make profits in the Forex market.
Sources:
Long, Thomas. “ DailyFX – Leverage and Margin.” Dailyfx.com 14 Oct. 2009
“Pip.” Investopedia.com
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