Online Forex trading involves exchanging one currency for another at the same time using a trading platform. These platforms let traders speculate on the exchange rate between two currencies. With online software, you can trade Forex directly from your computer to try to make a profit. The Foreign Exchange market has the highest daily trading volume of any financial market worldwide. It operates 24 hours a day, five days a week. The total daily volume is estimated to exceed $7 trillion globally, making Forex one of the most exciting investment opportunities available. Before online trading, central banks, investment banks, and commercial banks were the main participants. Now, technology lets many individual traders join the market.

Currency Pair Quotes

Currencies are always quoted in pairs, like EUR/USD or USD/JPY. The first currency is called the base currency, and the second is the quote or counter-currency. The base currency is the one you are trading. For example, if you buy USD/JPY, you are buying USD while selling JPY. You would do this, hoping the USD will rise against the JPY.

Purchasing and Trading Currency Pairs

You first decide whether to buy or sell a currency pair. If you expect the exchange rate to fall, you choose ‘Sell’ (a short order). If you expect it to rise, you choose ‘Buy’. Each currency pair has two prices: the bid and the ask. The difference between them is called the spread. For example, if the spread is 3 pips and you trade 10,000 units of EUR/USD, each pip is worth $1.

Margin and Leverage

Margin lets you control a position larger than your account balance. Most platforms let you set margin levels between 1% and 2%, but it’s best not to use leverage more than 10 times your account value. Leverage can increase both your profits and your losses. Even when the market is calm, large gains or losses can happen. If your leverage exceeds the limit, trading software usually closes your open positions to prevent your account from going negative, especially in fast-moving markets.

Rollover

In spot Forex, trades must settle within two business days. For example, if you buy 100,000 EUR on Monday, you must deliver the EUR by Wednesday unless you use rollover. Many platforms offer rollover, which pushes the settlement to 5:00 pm New York time the next day. When you rollover, you exchange your current position for a new one that settles the next day. The price of the new position may differ because of interest rates, currency pair differences, and daily market changes.

■ TradingCenter.org

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