FAQ

Forex FAQ’s

1. What is Forex Market?

Forex and ‘FX’ are shortened terms used for ‘foreign exchange’. Foreign exchange or ‘currency trading’ is the exchange of money from different countries. The value of one country’s currency is constantly changing against the value of another country’s currency. Forex traders make money through buying and selling currencies on the foreign exchange market. The "Forex" market is the most traded financial market in the world, with a daily average turnover of approximately US$3.2 trillion. Forex market is the simultaneous buying of one currency and selling of another; currencies are always traded in pairs. International currencies are traded on floating exchange rates.

2. What are the common currencies in the Forex market?

The most common currencies in the Forex market are divided into Majors and Crosses as the following:

Majors - EURUSD, GBPUSD, USDCHF, USDJPY, USDCAD, AUDUSD, NZDUSD

Crosses - EURCHF, EURGBP, EURJPY, GBPJPY, GBPCHF, CHFJPY, EURCAD, EURAUD, GBPCAD, AUDCAD, etc.

3. Who participates in the Forex market?

Central Banks, Commercial and Investment Banks were the traditional dominants of the Forex market, but now we can also include International Money and Fund Managers, Multinational Corporations, Registered Dealers, Options and Futures, Traders and Private Investors.

4. 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.

5. What is a CFD?

A CFD, or Contract for Difference, is an agreement between two parties to exchange the difference between the opening price and closing price of a contract. CFDs are derivatives products that allow you to trade on live market price movements without actually owning the underlying instrument on which your contract is based. You can use CFDs to speculate on the future movement of market prices regardless of whether the underlying markets are rising or falling. You have the opportunity to sell and profit from falling prices or buy and profit from rising prices. Moreover, with our vast variety of markets, you can gain exposure to markets you may not have had access before. We offer CFDs on shares, indices, and commodities.

6. What does it mean to 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 trader 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 trader benefits from a declining market. However, it is important to remember that every FX position requires a trader to go long in one currency and short in the other.

7. 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 virtually impossible for any one entity to "drive" the market for any length of time.

8. Is margin in forex trading different from stock trading?

Yes, there are 3 main differences:

  • Forex trading can offer up to 200 to 1 margin versus 2 to 1 for stock trading.
  • In stock trading, you pay your brokerage firm interest on the amount you borrow. Trust Capital TC does not charge interest on the leveraged amount.
  • When trading stock on margin, you are subject to “margin calls” – mandatory requests to supplement your cash deposit, should the position move against you.

Trust Capital TC does not engage in margin calls, and requires 100% maintenance margin at all times to help ensure that you don’t lose more money than you deposited. Learn more about risk.

9. Are there disadvantages to trading on leverage?

While leverage enables you to control a large amount of capital with a limited cash deposit, it can also expose you to significant losses.

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