FAQ

Besides yielding highest profit ratio forex trading also brings unexpected risks which results in substantial losses during currencies exchange. However these risks can be minimized by employing useful forex strategies. Therefore for novice forex traders it is recommended to gain enough forex trading experience by practicing in demo account to avoid real time risk factors in actual trading transactions.

Another way to manage risk factors in forex trading is to use online available forex trading tools including charts, graphs, tips, tutorials and updated forex news etc which can possibly help a trader to choose the optimum timing for every coming trading opportunity.

Obviously a forex trader should not put capital at stake when it does not seem affordable to him.

Ask-it offer price (buying), i.e. the price at which the dealer receives applications from traders to buy currencies, it shows a quotation currency pair.

Bid - this is the price of demand (sales), i.e. the price at which the dealer receives applications from traders to sell currencies.

The program MetaTrader 4 on default prices in the Bid, please take this into account when entering into transactions.

1. Forex quotes are based on supply and demand, for example from the actual proposals of major market participants (brokers, marketmakers) to buy or sell a particular currency at the current time. Bidders to obtain information and transactions between the use of information trading platform «Reuters-2000» and 3000; Bloomberg, EBS (elektronic broker systems) and others. Any proposal of a bidder that he is willing to buy / sell, for example, EUR 22-24 (1.3522-1.3524) comes immediately to the terminals of all brokers.
2. Each of the program for  analysis or transaction is connected to the servers of any of the brokers. Our flow is formed on the basis of quotations of prices of our partners - contractors. These quotes are a guide, an indicator of the market - or even referred to as indicative quotes.
3. Quotations received by our client - it quotes by FX Grant is ready to enter into a transaction (ie the issuing price of the customer's request), or have already entered into a transaction (ie, that price has taken a purchase or sale of currency). Everytime a customer who asks the price of the instrument (currency pair), FX Grant gives two prices - the price of purchase and sale price (quoted). This price is simultaneously sent to all customers and accounted for in volume and in the formation of graphs. In doing so, at this price is not necessarily the transaction, but the quotation has been issued and, accordingly, even if the customer who asked for a price not a bargain, then all other clients, who put on such a warrant such a price - the warrant executed. This quotation issued by the dealer FX Grant, into the flow of quotations, and issued to all customers at once and it is impossible to give any special price an individual client.

You can manage forex trading risks through its risk management tools including stop-order and limit order strategies. In stop order a specific level of trading is chosen by the trader at which trading process automatically stops to prevent any possible risk factor beyond this level.

While in limit order a specific price is set by trader at which he wants to invest in coming forex transactions which will also prove useful in controlling risk factors affectively.

Whenever the equity of trader’s balance gets lowered in comparison with margin requirement the margin call starts operating. Moreover when maximum leverage limit seems to be crossed all open positions gets closed automatically to prevent any risk factor and to secure investor’s capital.

The main differentiating factor between forex and conventional stock market is that in forex trading an investor makes profit on daily basis while in stock market one has to retain his investment for years. The reason is that forex trading generates profit on the basis of daily momentary fluctuation in the value of foreign currency rates.

There is no time limit for holding a specific position in forex trading. Every position can be held until its objective is attained in the form of desired profit ratio. Owing to the changing forex environment traders might become interested to liquidate the current position to get benefited by another trading opportunity coming ahead.

Literally there is no limit on the number of trades carried out during a day. It depends upon the influential factors that determine the active participation of traders.

So you must consider current market environment and our charges before trading actively all the day.

Absolutely ‘not’ forex trading has no central operating marketplace that is why forex transactions are carried out between FX market (inter-bank) and Over-The-Counter (OTC) market.

1 point - is the minimum unit of price change. Record quotations of currencies, with four significant digits after the decimal point is a standard entry for all major currency pairs, except the yen. This couples EUR / USD or GBP / USD price of one item to be exactly equal to one dollar, if you commit a transaction size of 10,000 units of base currency. To franc (USD / CHF) the price of one item will be approximately $ 1, and it will be little change with a change in course.

For the Japanese yen record is as follows: USD / JPY 117.10/117.15. As can be seen, after a point is only two significant digits. This recording is useful because it allows to maintain the «weight» of one item. It will be about 1 dollar in the transaction in the amount of 10,000 dollars.

To calculate the value of the item in U.S. dollars use the following formula: The cost of item = (Item * Lot) / Exchange Rates quotes to USD

Lot specified in units of base currency.

Item - the minimum possible change in quotes, for example 0.0001 to CHF, 0.01 for JPY

Please note that for some pairs of currencies, such as the GBPUSD, EURUSD, the currency quotation is USD, then in this case the exchange rate quotes for USD is equal to 1.When calculating the cost of the item for a cross-rates, one must take it course quotes to USD, but not to the base currency pair. At the cross-rates, in which the quote currency is GBP or EUR, the exchange rate quotes for USD this course pairs USDGBP and USDEUR not EURUSD, GBPUSD. That is, rate USD / GBP = 1 / (rate of GBPUSD).

Examples of calculating the cost of the item:

Currency Pair: GBPUSD Lot: 10000 Value item = (10000 * 0.0001) / 1 = 1 $ Currency Pair: USDCHF Lot: 100000 Course USDCHF = 1.6815 The value of the item = (100000 * 0.0001) / 1.6815 = $ 5.95 Currency Pair: EURJPY Lot: 1000000 Exchange EURJPY = 115.54 Course USDJPY = 132.58 cost of item = (1000000 * 0.01) / 132.58 = $ 75.43 Currency Pair: EURGBP Lot: 20000 Exchange EURGBP = 0.6128 Exchange Rate GBPUSD = 1.4228 USDGBP = 1 / (Rate GBPUSD) = 1 / 1.4228 = 0.7028 The cost of item = (20000 * 0.0001) / 0.7028 = $ 2.85 FX Grant clients easily can calculate the cost of the item in the Forex Pips Calculator.

What is a reverse, partial closure and the addition of the position? As with the calculated profit / loss?

When trade occurs occasionally wish to close your existing position is not full, but only a part. Alternatively, perform a so-called reverse position, that is, for example, you want to sell an amount greater than you have purchased.

What occurs in this case:

1. Let’s have a look on a specific example of a partial closure of positions.

   You have bought 100,000 EUR against USD at the exchange rate of 0.8800, when the rate of 0.8850 marks, you decide to sell 50,000 EUR against USD. In the end, you still get in the position of 50,000 EUR at the rate of 0.8750! Ie in this case the profit on the partial closure is not joined to your deposit, as reflected in the change (in the best way for you) courses are open positions.

2. Let’s have a look on a example of transaction-type reverse.

   You have bought 100,000 EUR against USD at the exchange rate of 0.8800, when the rate of 0.8900 marks, you decide to sell 200,000 EUR against USD. In the end, you have a position: sell 100,000 EUR at the rate of 0.9000! Ie in this case, profits from the reverse is also not adhered to your deposit, as reflected in the change (in the best way for you) rate of new positions.

   In both examples can be described independently satisfied fidelity "arithmetic" a simple way - the whole process in each case can be represented as two transactions. For example, in the second case - the purchase of 100,000 EUR, and selling 100,000 EUR and the same time selling another 100,000 EUR. If the steps were made this way, your deposit would have joined 1,000 USD gains, and the last sale of 100,000 EUR to impact on your record for the current exchange rate, ie 0.8900. If we look at the results of the transaction with the coup - all the same - we have the position of selling 100,000 EUR at the rate of 0.9000 at the current market of 0.8900. Accordingly, if you want to close down - we get the same 1,000 USD profit.

   It is obvious that in some market situations more advantageous to use the above options transactions, as well as in fact they are replacing two steps and allows one to save time. Another example is that a better understanding of mathematics: Open position on the EUR against the USD - purchased 20 000 at the exchange rate of 0.8900, when the market level of 0.9000, you decide to coup with the increase in the lot. Ie You conclude a deal to sell 50 000 EUR against USD.

   The result will be:

   + 20 000 EUR discovery rate multiplied by 0.8900 equals 17 800 + USD
     - EUR 50 000 multiplied by the rate of revolution is equal to 0.9000 - 45 000 USD
     - 30 000 EUR - 27 200 USD

First of all, it must be said that in the foreign exchange market there are different types of participants. Central banks, commercial banks, investment funds, financial offices, brokerage houses and individual traders. Each party is interested in is to buy cheap and sell more expensive, but each party has its own main function, which he performs in the market.

Commercial banks  

For the main function of commercial banks participating in the currency trade - is to ensure the liquidity of its own funds and execution of client applications, such as requests of importers and exporters. Enterprises located in a single economic zone and are interested in products or raw materials produced in other economic areas, will be forced to exchange their national currency to the currency of the country where these goods are produced. Exchanging money (converts) are conducting their commercial banks. Volume of converse operations is significant and can last up to 2 / 3 of all daily operations in the FOREX. This is, of course, also leads to changes in exchange rates since the supply of and demand for different currencies are in constant change.

Ultimately, the foreign exchange market is a market for interbank transactions, and, thereafter, on motion of exchange rates and interest rates, one should bear in mind the interbank foreign exchange market.

On world currency markets, the most influenced by the major international banks, the daily volume of transactions reaches billions of dollars. These banks, like Deutsche Bank, Barclays Bank, Union Bank of Switzerland, Citibank, Chase Manhattan Bank, Standard Chartered Bank and others. Their main difference is the large volume of transactions that may lead to a significant change in the quotation or the price of the currency. Typically, major players are divided into bulls and bears. Bulls - it is market participants who are interested in enhancing the value of the currency; bears - that market participants who are interested in lowering the value of the currency. Typically, the market is in a state of equilibrium between the bulls and bears, and the difference of quotations of currencies fluctuate in a fairly narrow limits. However, when bulls or bears "take up", quotes, exchange rates are changing quite dramatically and significantly.

Companies engaged in foreign trade operations

Companies participating in international trade, have a strong demand for foreign currency (as importers) and supply of foreign currency (exporters), as well as place and are free foreign exchange balances in short-term deposits. In doing so, these organizations direct access to the foreign exchange market, as a rule, do not have, and carries out conversion and deposit transactions via commercial banks.

Companies engaged in foreign investments of assets (Investment Funds, Money Market Funds, International Corporations)

These companies provided different kinds of international investment funds, implement a policy of diversified management of portfolio assets by placing funds in securities of governments and corporations of different countries. At the dealer's slang they call a fund or funds; best known fund "Quantum" George Soros, the successful carrying out foreign exchange speculation, and the fund "Dean Witter".

For this type of firms are also major international corporations engaged in foreign manufacturing investment: the creation of subsidiaries, joint ventures, etc., such as, for example, Xerox, Nestle, General Motors, British Petroleum and others.

Central banks

Their main task is to regulate currency in the foreign market - namely, preventing the spike in rates of national currencies, to prevent the economic crisis, maintaining the balance of exports and imports, etc. Central banks have a direct impact on the currency market. Their influence can be either direct - in the form of currency intervention, and indirectly - through the regulation of the money supply and interest rates. They can not be assigned to the bulls or the bears, because they can play as an increase or decrease based on the specific challenges facing them at this time. Brokers can act in the market alone to influence the national currency, or in concert with other Central Bank to conduct a joint monetary policy in the international market or for joint interventions.

The biggest influence on world currency markets are: the U.S. central bank - the Federal Reserve System (US Federal Reserve or a brief FED), the central bank of Germany - Bundesbank (Deutsche Bundesbank) and the UK - Bank of England (Bank of England, also called the Old Lady).

Currency Exchange

In some countries with transitional economies there are exchange markets, responsible for the exchange rates for businesses and market-based exchange rate. The state usually regulates the level of active exchange rate, using a compact stock market.

Foreign exchange brokerage firm

Their duties include bringing the buyer and seller of foreign exchange and conversion between them, or credit-deposit operations. During his brokerage brokerage firms charge a broker's fee as a percentage of the amount of the transaction.

Private individuals

Individuals who hold a wide range of non-trade transactions in foreign tourism, remittances, pensions, royalties, buying and selling hard currency. And in 1986 with the introduction of trade marginal individuals were able to free funds to invest in the FOREX market with a view to profit.

The main volume (90-95%) in the FOREX market makes the world's largest commercial banks, making a conversion operation in the interests of their clients, and at his own expense. Nevertheless, advances in computer technology have allowed in this area and find the area of finance applications for funds are often private and small investors. A growing number of brokerage firms and banks provide access to private investors in the FOREX market through the Internet.

In the language of traders, Long position - the one in which a trader buying the currency at one price, is seeking to profit by closing the deal at a higher price. In such a situation, the investor tries to use the possibility of market growth. Opening the short  position, the trader sells the currency, expecting a decrease in its rate. Investors profit from falling markets.

Forex trading is a SPOT trading, which means that all trades are settled on the second business day after your position has been opened. SWAP operation is used to avoid the physical delivery of a currency. In essence, in the end of each trading day, all positions are closed and immediately re-opened at SWAP price. SWAP is executed automatically at 22:00 GMT.

In your trading report, you will see two lines: closing of position (SWAP t/n) and opening of the same position (SWAP open). Re-opening rate will be adjusted for SWAP pips. SWAP pips are determined by the interest rate for currencies that are used in the position. You can find our exact values of SWAP pips below.

Value date (date of delivery of currency) for trades carried from Wednesday to Thursday is Monday. Hence, SWAP pips will be calculated for three days.

Intraday positions include all open trading positions during the day cycle of 24 hours before our business day closes at 22.00 GMT.

While overnight positions refers to positions which remains open even after the closing of daytime positions. Out trading system rolls over these positions automatically.

The greatest interest for speculators are the most common (the most liquid, or major) currencies of countries with a stable state, a strong central bank and low inflation. Today, over 90% of all transactions constitute transactions in major currencies, which include the U.S. dollar (USD), Japanese Yen (JPY), Euro (EUR), British pound (GBP), Swiss Franc (CHF), Canadian (CAD) and Australian (AUD) dollars.

The list of currencies which provides an opportunity to commit the transaction the company FX Grant is here.

At FX Grant you need only USD 10 in hand to open a forex trading account. At this forex trading platform you can choose the highest leverage ratio up to 500:1 for every trading opportunity.

Therefore you have to set your leverage level according to your trading preferences. Usually this leverage level is set at moderate level according to the size of your forex trading account.

Note: Leverage is the best way to maximize your profit ratio up to 500 times than your actual investment capacity but it brings equal risk factors as well.

Forex traders take short and long positions during transactions to gain possible profit from ongoing trading opportunities. Short position is taken to sell a currency at lower profit owing to the expected decline in its value in near future while long position is taken to buy currency at lower rate and keep it until its value reaches desired height. At this highest value the currency is traded to get maximum profit out of it.

Traders take alternative short and long positions to adjust their profit ratio to the changing environment of forex market. In each case trader goes for short position in one currency and assumes long position in other one.

The most influential factors in forex trading include political stability, economical position, natural disasters and interest rates etc. Therefore governments take part in forex trading market to influence the value of their currency accordingly.

However unexpected huge forex trading can also have substantial impact over the value of currencies being traded at that moment.

Quote - this is the price of currency, reflecting the value of one currency in terms of another at the moment. This is a more specific numerical value than «currency». The notion of «currency» is more abstract, though they say that the transaction «produced at the rate of such a». And the notion of «quotation» said what course of buying and selling at the same time of course, have been proposed trader broker in response to a query about the price in a certain moment.

Forex stands for Forex Exchange which is a global marketplace for trading foreign currencies. In forex trading no central authority exists therefore currencies from all corners of the world are brought and sold here with no geographical bound. Due to having highest liquidity ratio forex trading market is yielding $1.9 trillion turnover every day.

The huge forex trading arena comprises almost 5000 trading bodies including international banking systems, investment companies, individual investors and highly trained brokers etc. The main trading centers involved in regulating the whole trading process are located in New York, London, Tokyo, Hong Kong and Paris and Singapore.

With no central controlling body forex trading keeps on operating round the clock. It remains functioning for 24/5 hours a week via dedicated telephone lines or internet connections between currency sellers and buyers who exchange currencies in pairs including USD/Euro, CAD/USD, GBP/CHF, USD/JPY and Euro/JPY.

Hedging -is a strategy designed to minimize exposure to such business risks as a sharp contraction in demand for one's inventory, while still allowing the business to profit from producing and maintaining that inventory.

The most frequent type of hedging - hedging futures contracts. The origin of futures contracts was due to the need for insurance against changes in commodity prices. The first operations were carried out in the futures on the Chicago commodity markets, namely, to protect it from sudden changes in market conditions. Until the second half of 20 century hedging (the term was already enshrined in the regulations) was used exclusively for the lifting of price risks. Currently, the aim of hedging is not a lifting of the risks, and their optimization.

The mechanism of hedging is to balance the obligations on cash market (goods, securities, currencies) and opposite in direction to the futures markets.

In addition to transactions in futures hedge can be considered and fixed-term transactions with other instruments: forward contracts and options. Sale of an option under the rules of IFRS can not be recognized hedge.

As a result of hedging is not only a reduction in risk, but also a possible reduction in profit.

There are hedge buying and selling. Buying hedge (hedge buyer, a long hedge) is related to the purchase of futures, which provides insurance against a possible buyer of price increases in the future. When selling hedge (hedge seller, a short hedge) to conduct the sale on the market a real product, and for insurance against a possible decline in prices in the future sells term instruments.

In finance sector including forex trading margin is collateral which is insured to cover the investment risks involved in every trade. Margin value in forex trading lets it holder to assume much greater trading position than its actual trading capacity.

That is why before starting real trades with FX Grant a pre- check is carried out to evaluate the margin availability on the basis of actual amount present in your forex trading account.

FX Grant trading set up estimates the actual cash requirements to cover the ongoing trading options and this valuable information is available to all traders in real time.

In case if your account has lower investing capacity as compared to given margin requirements all trading options are automatically close to prevent any possible risk to your capital from current trading environment.

To understand this let’s recall the currency exchange. We always see the difference between the purchase price of the currency and the price of it’s sale. The difference is money and the bank, the currency which buys and sells. When you trade through a broker in the market FOREX, we also see the difference, but not so much as in the exchanger, but much smaller. For example, the quotation «EUR 1.2700/1.2705» means that the broker is currently willing to buy from us euro against the U.S. dollar 1.2700, you sell the euro at 1.2705 and the difference between purchase price and sale price of 5 points (0,0005). This is the spread.

In summary - The spread is the difference between the purchase price (Ask) and sales (Bid).

Base currency - it is the currency in a particular currency pair, the price of one unit which is always measured in terms of another (quote) currency.

Quote currency - it is the currency in terms of expressing the price of one unit of base currency. The base currency in the designation of the currency pair is written first, as quoted - the second one.

For example, GBP / USD means that the base currency - GBP (English pound), bought and sold we will in USD (U.S. Dollar). A similar situation with a pair of EUR / USD (Euro against the U.S. dollar). In a couple of USD / JPY base is USD, and in this case, we will buy and sell dollars for the JPY (Japanese Yen). Similarly - for the pair USD / CHF (U.S. dollar against the Swiss franc).

It should be noted that in some pairs the U.S. dollar is the base currency, and some - quote: Historically, and this should be easy to take. If the dollar is the base currency quotes, this is called a direct quotation, as if the dollar is the quote currency, the quotation is called the inverse.

Knowing whether a U.S. base or quote currency pair, the trader can simply delete the reference to the dollar in the currency pair and say that «I bought a pound» or «sold yen». All will become clear what kind of operation conducted trader. For the pound, he bought a pound (pound - the basic currency in the pair, and the dollar - quote) and he sold the yen to the dollar (the dollar - the base, and the yen - quote). But it is better to speak intelligently «sold the dollar against the yen».

Keep in mind that the prices reflected in the graphs is change in the price of the base currency against the quote. Therefore, if the graph EUR (alias - EUR / USD) the price goes down, it means that EUR goes down and dollar goes up. If the graph CHF (USD / CHF) price moves up, it means that the USD gets more expensive and CHF is getting cheaper.

Marketmakers on the Forex it is companies that take on price risks, having hosted a number of constant currency, to maintain the trade in that currency, even when the market is illiquid; Each marketmaker competing applications for clients, giving prices for buying and selling on guaranteed amount of currency. If marketmaker receives an application for the purchase of currency, he immediately sells the currency of the client's assets or the client is looking for the opposite operation.

On the stock market marketmaker is a broker and dealer companies that support the liquidity of certain of the securities.

Nasdaq could be a good example of a marketmaker; marketmakers are more than 500 companies, supporting the liquidity of the majority of the securities by means of the price of buying and selling.

Most forex brokers allow a very high leverage ratio, or, to put it differently, have very low margin requirements. This is why profits and losses can be so great in forex trading even though the actual prices of the currencies themselves do not change all that much—certainly not like stocks. Stocks can double or triple in price, or fall to zero; currency never does. Because currency prices do not vary substantially, much lower margin requirements is less risky than it would be for stocks.

Most brokers allow a 100:1 leverage, or 1% margin. This means that you can buy or sell $100,000 worth of currency while maintaining $1,000 in your account. Mini-accounts can have leverage ratios as high as 200.

The margin in a forex account is often referred to as a performance bond, the amount of equity needed to ensure that you can cover your losses. Thus, you do not buy currency with borrowed money, and no interest is charged on the rest of the currency's value that is not covered by margin. So if you buy $100,000 worth of currency, you are not depositing $1,000 and borrowing $99,000 for the purchase. The $1,000 is to cover your losses. Thus, buying or selling short currency is like buying or selling short futures rather than stocks.

The margin requirement can be met not only with money, but also with profitable open positions. The equity in your account is the total amount of cash and the amount of unrealized profits in your open positions minus the losses in your open positions.

Total Equity = Cash + Open Position Profits - Open Position Losses

Your total equity determines how much margin you have left, and if you have open positions, total equity will vary continuously as market prices change. Thus, it is never wise to use 100% of your margin for trades—otherwise, you may be subject to a margin call. In most cases, however, the broker will simply close out your largest money-losing positions until the required margin has been restored.

Most brokers advertise leverage ratios, which are usually 100:1 for regular accounts and could go as high as 200:1 for some mini-accounts. Or, often, only the leverage is quoted, since the denominator of the leverage ratio is always 1. The amount of leverage that the broker allows determines the amount of margin that you must maintain. Leverage is inversely proportional to margin, which can be summarized by the following 2 formulas:

Margin = 1/Leverage

Example:

A 100:1 leverage ratio yields a margin percentage of 1/100 = 0.01 = 1%.

A 200:1 ratio yields 1/200 = 0.005 = 0.5%.

A 500:1 ratio yields 1/500 = 0.005 = 0.2%.

Leverage = 1/Margin = 100/Margin Percentage

Example:

If the margin is 0.01, then the margin percentage is 1%, and leverage = 1/0.01 = 100/1 = 100.

To calculate the amount of margin used, multiply the size of the trade by the margin percentage. Subtracting the margin used for all trades from the remaining equity in your account yields the amount of margin that you have left.

To calculate the margin for a given trade:

Margin Requirement = Current Price x Units Traded x Margin

Example:

Calculating Margin Requirements for a Trade and the Remaining Account Equity

You want to buy 100,000 Euros (EUR) with a current price of 1.35 USD, and your broker requires a 1% margin.

Required Margin = 100,000 x 1.35 x 0.01 = $1,350.00 USD.

Before this purchase, you had $2,000 in your account. How many more Euros could you buy?

Remaining Equity = $2,000 - $1,350 = $650

Since your leverage is 100, you can buy an additional $65,000 ($650 x 100) worth of Euros:

65,000 / 1.35 ≅ 48,148 EUR

To verify, note that if you had used all of your margin in your initial purchase, then, since $2,000 gives you $200,000 of buying power:

Total Euros Purchased with $200,000 USD = 200,000 / 1.35 = 148,148 EUR

Helpful forex trading strategies include complete analysis of current global scenarios in political and financial sectors along with taking updated forex trends and news into consideration before going for investing in coming forex transactions.

Moreover a forex trader also has to keep a vigilant eye on unexpected changes in these vital sectors which can have substantial impact upon present currency value. Remember that in most of the cases the expectation of an event matters a lot in deciding the actual price of major currencies rather than the event itself.

Mostly those currencies are being traded in forex market whose countries have stable government infrastructure, efficient banking system and lower inflation rate. Therefore today the major currencies of forex trading include US, Canadian and Australian Dollars, Euro, Japanese Yen, GBP and Swiss Franc etc.

There are two definition of dealer.

1. Dealer - a professional financial market participants performing dealership. Dealer may be a legal person, is a commercial entity.
2. Dealer - is a qualified employee financial services company, which performs (executes customer orders), and executes the transaction customer and gives quotes on behalf of the broker.

Few years back only commercial, central or investment banks were the major players of forex trading game but now it has expanded its circle to include multinational corporations (MNCs), capital managers and brokers, registered forex dealers, forex traders and private investors etc.