Marketiva FAQs
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 bu ying 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. AlaronFX requires a
minimum deposit of $5,000. AlaronFX allows customers to
execute margin trades at up to 100:1 leverage. This means that
investors to execute trades up to $100,000 with an initial
margin requirement of $2000. 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 against a customer's position,
AlaronFX will request additional funds through a "margin
call." If there are insufficient available funds, AlaronFX
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 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 AlaronFX'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 AlaronFX at
competitive rates (based on the currencies interest rate
differentials) to the next day's price
What is the
difference between liquidity and volatility?
Volatility is a statistical measure of a market's price
movements over time. Volatility is high if prices change
dramatically in a short period of time. Liquidity is a market
condition that allows large transactions to be absorbed by the
marketplace with little or no effect on price stability. With
a daily trading volume that is 50x larger than the New York
Stock Exchange, there are always broker/dealers willing to buy
or sell currencies in the FX markets, thereby assuring
liquidity.
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
against 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, AlaronFX 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: 1)
realization of sufficient profits from a position; 2) the
specified stop-loss is triggered; 3) another position that has
a better potential appears and you need these funds. FOREX
| |
|
