FAQ

FAQ

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Despite the enormous size of the forex market, there is very little regulation because there is no governing body to police it 24/7. Instead, there are several national trading bodies around the world who supervise domestic forex trading, as well as other markets, to ensure that all forex providers adhere to certain standards. For example, in the UK the regulatory body is the Financial Conduct Authority (FCA).

Approximately $5 trillion worth of forex transactions take place daily, which is an average of $220 billion per hour. The market is largely made up of institutions, corporations, governments and currency speculators – speculation makes up roughly 90% of trading volume and a large majority of this is concentrated on the US dollar, euro and yen.

Gaps are points in a market when there is a sharp movement up or down with little or no trading in between, resulting in a ‘gap’ in the normal price pattern. Gaps do occur in the forex market, but they are significantly less common than in other markets because it is traded 24 hours a day, five days a week.

However, gapping can occur when economic data is released that comes as a surprise to markets, or when trading resumes after the weekend or a holiday. Although the forex market is closed to speculative trading over the weekend, the market is still open to central banks and related organisations. So, it is possible that the opening price on a Sunday evening will be different from the closing price on the previous Friday night – resulting in a gap.

The easiest forex pair to trade will vary from trader to trader, depending on their interests and attitude to risk. A good place for beginners to start would be the major forex pairs that have a larger trading volume, which makes them far more liquid and potentially less volatile.

The most traded currency pairs are the major crosses, including EUR/USD, USD/JPY, GBP/USD and USD/CHF. For those just starting to trade the forex market, it is important to understand that the majority of forex trading is concentrated across these combinations, which can make them easier to trade as they have higher liquidity.

To start trading forex, you’ll need to make sure there is enough capital in your trading account. Unlike the stock market, there is no enforced minimum. This means that your required capital can be based on your goals and trading style, but it is often suggested that traders shouldn’t risk more than 1% of their account on each trade. For example, if your account contains $10,000, then you may decide not to risk more than $100 on a single trade.

Once you have established how much capital you have available, you will then need to start preparing the rest of your forex trading plan – this should include when you want to get out of trading forex, the time you are willing to commit to trading, researching which markets you want to trade, your risk management strategy and your trading strategy.

Whether you’re completely new to trading or have traded other markets before, the volatility of the forex market is a very unique environment that takes time to understand. However, anyone can trade forex if they develop their trading knowledge, build a forex trading strategy and gain experience trading the market.

A forex trading strategy should take into account the style of trading that best suits your goals and available time. For example, day trading is a strategy that involves opening and closing positions within a single trading day, taking advantage of small movements in the price of a currency pair. On the other hand, position trading is the strategy of holding positions open for a longer amount of time to take advantage of major price movements. Both have different time commitments and different techniques needed for success.

The nature of the forex market is extremely volatile, so a currency pair that moves a lot one week, might show very little price movement the next. However, the majority of forex trading volume is found on a handful of forex pairs, including EUR/USD, UDS/JPY, GBP/USD, AUD/USD and USD/CHF – because these pairs attract the most traders, they often see the most movement.

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