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How FX Trade Works

How FX Trade Works

In the FX market you can buy or sell one currency for another. When you buy a currency, you are said to be "long" in that currency and when you sell a currency, you are said to be "short" in that currency. As the value of one currency rises or falls relative to another, traders decide to buy or sell currencies in order to make profits - since the objective is to earn a profit from their position. Placing a trade in the foreign exchange market is simple and the mechanics of a trade are virtually identical to those found in other markets.


Quoting Currency Pairs

Currencies are quoted in pairs, such as EUR/USD or USD/JPY. The first listed currency is known as the base currency, while the second is called the counter or quote currency. The base currency is the "basis" for the buy or the sell. For example, if you BUY EUR/USD you have bought Euros (simultaneously sold dollars). You would do so in expectation that the Euro will appreciate (go up) relative to the US dollar.

Buying / Selling

First, the traders should determine whether they want to buy or sell. If they want to enter a short order - whereby they will profit if the exchange rate falls - they simply need to click on the SELL rate. The opposite holds true for traders who enter buy orders: they can simply click on the BUY rate, and thus will profit if the exchange rate goes up. Example of How Buying / Selling Works As with all markets, there are two prices for every currency pair. The difference between these two prices is the spread, or the cost of the trade.

Margin / Leverage

FX accounts are margined: a trader can hold a market position much larger than the value of the trader's account value. The online trading platform which FOREXYARD offers has margin management capabilities, which allow lenient margin requirement of up to 0.5%. Using leverage exaggerates both gains and losses. Even when market conditions are relatively calm, using leverage can generate large gains or losses. In the case where a trader surpasses the maximum leverage allowed (which can happen when account equity shrinks as a result of trading losses), the trading system will close all open positions in the account. This prevents client's accounts from falling into a negative balance, even in a highly volatile, fast moving market.

Rollover

In the spot forex market, trades must be settled in two business days. If a trader sells 100,000 Euros on Tuesday, the trader must deliver 100,000 Euros on Thursday, unless the position is rolled over. As a service to our traders, FOREXYARD automatically rolls over all open positions to the next settlement date at 5:00 pm New York time. Rollover involves exchanging the position being held for a position expiring the following settlement date. The positions being exchanged are usually not valued at the same price. The difference in amount varies greatly based on the currency pair, the interest rate differential between the two currencies, and fluctuates day to day with the movement of prices. For positions open at 5.00 pm EST there is a daily rollover (interest payment) you pay for an open position depending on your established margin level and position in the market. If you do not want to earn or pay interest on your positions, simply make sure they are closed by 5.00 pm EST, the established end of the market day.

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Trading CFDs carries risk and could result in the loss of your deposit, please trade wisely.