What is forex?
Forex (Foreign Exchange) is the name given to the "direct access" trading
of foreign currencies. With an average daily volume of $1.9 trillion, forex is
the world's most liquid market1. In the past, forex trading was
limited largely to enormous money center banks and other institutional
traders. But in just the past few years, technological innovations and the
development of online trading platforms, such as that used by Zaner Group,
allow small traders to take advantage of the significant benefits of trading
foreign currencies with forex.
You can get started trading right now
If you are a trader now, or would like to become one, trading foreign
currencies through Zaner Group has significant advantages over other types of
trading.
For one thing, it is remarkably easy to get started. All you need to do is
open up a demo account with $50,000 worth of "virtual money", and start
playing around. You can begin trading immediately with zero risk, live
quotes, and the same real time profits and losses you would have trading a
real account.
It is just like learning to ride a bike. The best thing to do is just
start. Eventually you take the training wheels off, and you ride for real.
With forex, that means putting money into a live trading account, and trading for real. Or you
can "walk through a trade" right now and see how forex trading works within
minutes.
Significant advantages of forex over other types of trading
Forex is similar to the futures markets in that investors are able to
control large amounts of an asset for a relatively small deposit, or margin
-- but with substantial advantages.
For one thing, the leverage in forex is
greater than that of a typical futures contract. For example, with typical forex leverage of 100:1,
$1,000 can control $100,000 worth of a foreign currency. Of course, the advantage of increased leverage also carries increased risk.
Secondly, because you access the market directly through electronic
online trading, you pay only the bid/ask spread, zero commissions or exchange fees*.
Thirdly, forex at Zaner Group, your risk is monitored and limited. Under normal conditions you
can never lose more than you have in your account. And like futures, you can roll over forex positions
indefinitely.
Finally, forex is a 24-hour-a-day market that literally follows
the sun around the world, from the U.S. to Australia and New Zealand to Hong
Kong, the Far East, Europe and then back again to the U.S. The huge number
and diversity of investors involved make it difficult even for governments to
control the direction of the market.
The unmatched liquidity, zero commission
trading*, and around-the-clock global activity make forex the ideal market for
an active trader like you.
How it works
Trading forex through Zaneris remarkably easy. Everything you need to
trade can be found directly through Zaner's trading stations, including
charts, quotes, commentary, analysis and more.
Buying and Selling
In the forex market, currencies are always priced and traded in pairs. You
simultaneously buy one currency and sell another, but you can determine which
pair of currencies you wish to trade. For example, if you believe the value
of the euro is going to increase vis-à-vis the U.S. dollar, then you would go
long one U.S. dollar/Euro position. Obviously, the objective of forex
currency trading is to exchange one currency for another in the expectation
that the market rate or price will change so that the currency you bought has
increased its value relative to the one you sold. If you have bought a
currency and the price appreciates in value, then you must sell the currency
back in order to lock in the profit. An open trade or position is one in
which a trader has either bought/sold one currency pair and has not
sold/bought back the equivalent amount to effectively close the position
Quoting Conventions
The first currency in the pair is referred to as the base currency, and
the second currency is the counter or quote currency. The U.S Dollar, as the
world's dominant currency, is usually considered the base currency for
quotes, and includes USD/JPY, USD/CHF, and USD/CAD. This means that quotes
are expressed as a unit of $1 USD per the other currency quoted in the pair.
The exceptions are the Euro, Great Britain pound, and Australian dollar.
These currencies are quoted as dollars per foreign currency. As with all
financial products, forex quotes include a "bid" and "ask." The bid is the
price at which a market maker is willing to buy (and you
can sell) the base currency in exchange for the counter currency. The ask is
the price at which a market maker will sell (and you can buy) the base
currency in exchange for the counter currency. The difference between the bid
and the ask price is referred to as the spread.
You get much lower margin requirements
As you know, the margin deposit is not a down payment on a purchase.
Rather, the margin is a performance bond, or good faith deposit, to ensure
against trading losses. The margin requirement allows you to hold a position
much larger than your actual account value. Zaner' s online trading
platforms has margin management capabilities that allow you 100:1 leverage, which,
if taken advantage of, increases risk and allows for a greater possiblity of profit. The
trading platforms
performs an automatic pre-trade check for margin availability, and will only
execute the trade if you have sufficient margin funds in your account. The
system also calculates the funds needed for current positions and displays
this information to you in real time.
In the event that funds in your account fall below margin requirements,
the Zaner trading station will close all open positions. This prevents
your account from ever falling below the available equity even in a highly
volatile, fast moving market.
Rollovers are automatic
In the spot forex market, trades must be settled in two business days. For
example, if you sell 100,000 euros on Tuesday, you must deliver 100,000 euros
on Thursday, unless the position is rolled over. As a service to you, Zaner automatically rolls over all open positions -- that is, exchanges the
trade forward to the next settlement date (two business days) at 5:00 PM New
York time. The swap rates are determined at the Interbank level and are
tradable instruments. In any spot rollover transaction there is a difference
in interest rates between the two currencies that will be reflected in the
overnight "loan." If the trader is long the currency with the higher interest
rate in the pair, you should gain on the spot rollover through the premium
relationship of that currency relative to the short currency. The amount of
the gain is determined by the interest rate differential between the two
currencies, and fluctuates day to day with the movement of prices. For day traders that never hold a position overnight, rollover
will not affect trading.
* Zaner is compensated for its services through the bid/ask spread.
1According to: BIS Quarterly Review: Why has FX trading surged? Explaining the 2004 triennial survey |
