What is Forex (FX)?
Forex is the market where one currency is traded for another. When trading in the Forex market, you always trade a combination of two currencies (a cross or currency pair) in which one currency is bought (long) and the other is sold (short). This means you are speculating on the prospect of one of the currencies appreciating in value in relation to the other.
The currency market is huge with an estimated USD 3.5 trillion traded globally every day. This is far larger than both the Stock and Futures markets combined. With this level of turnover, there is always movement in the Forex markets and the opportunity for you to make profits, even when other markets are stagnant.
Forex trading carries a high degree of risk to your capital. Losses can quickly and substantially exceed your initial investment. You may need to make further margin payments. Forex trading is not suitable for all investors. You should fully understand the risks and seek independent advice if necessary.
Forex Margin Trading
Trading on margin allows you to buy and sell assets that have a greater value than the capital in your account. Forex trading operates on margined accounts and the industry practice is to trade on small margin amounts. This is because currency exchange rate fluctuations tend to be small: less than one or two percent on any given day.
Margin trading involves risk. Since a position is being held that exceeds the actual value of the account, you could incur substantial losses if the market moves against your position.
If margin exceeds your collateral available for margin trading, your positions must be closed, reduced, or additional funds must be posted to cover the position.