WHAT
IS A FOREIGN EXCHANGE MARKET?
The Foreign Exchange market, also known as the "Forex"
or "FX" market, is the largest financial market in the
world, with a daily average turnover of approximately US$1.5 trillion.
Foreign Exchange involves the simultaneous buying of one currency
and selling of another.
The world's currencies mainly
float freely against each other and are always traded in pairs,
for example Euro/Dollar or Dollar/Yen.
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WHERE IS THE FOREX
MARKET?
FX Trading is not based in any one place or places, as with the
stock and futures markets. The FX market is considered an Over
the Counter (OTC) or 'Interbank' market, due to the fact that
transactions are conducted between two counterparties over the
telephone or via the internet or a private electronic network.
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WHO ARE THE PARTICIPANTS
IN THE FX MARKET?
The Forex market is called an 'Interbank' market due to the fact
that historically it has been dominated by banks, including central
banks, commercial banks, and investment banks. However, the percentage
of other market participants is rapidly growing, and now includes
large multinational corporations, global money managers, registered
dealers, international money brokers, futures and options traders,
and private speculators.
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WHEN IS THE FX MARKET
OPEN FOR TRADING?
Forex trading begins each day in Auckland, and moves around the
globe as the business day begins in each financial centre, first
to Sydney, Tokyo, then London, and New York. Unlike any other
financial market, investors can respond to currency fluctuations
caused by economic, social and political events at the time they
occur - day or night. It is truly a 24-hour market, as there is
always an active range of counterparties.
Currencies are traded continuously
from Monday morning (Sunday afternoon Chicago/New York time) in
New Zealand/Asia to the close of the business week on Friday afternoon
in Chicago/New York.
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WHAT ARE THE MOST
COMMONLY TRADED CURRENCIES?
The most commonly traded currency pair is EUR/USD, also known
as "Eurodollar". It accounts for about 30% of all forex
transactions. Next is USD/JPY, with about 20% of turnover. GBP/USD
is the third major pair, known as "Cable", with about
11%.
The most often traded or
'liquid' currencies are those of countries with stable governments,
respected central banks, and low inflation. Today, over 85% of
all daily transactions involve trading of the major currencies,
which include the US Dollar, Japanese Yen, Euro, British Pound,
Swiss Franc, Canadian Dollar and the Australian Dollar.
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IS FOREX TRADING
CAPITAL INTENSIVE?
No. Mandus Invest requires a minimum deposit of $5,000. Mandus
Invest allows customers to execute margin trades at 1-3% leverage.
It is important to remember that while this type of leverage allows
investors to maximize their profit potential, the potential for
loss is equally great.
A more pragmatic margin trade
for someone new to the FX markets would be 5:1 or even 10:1, but
ultimately this depends on the investor's appetite for risk.
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WHAT IS MARGIN?
Margin is a safety net for a position. It is roughly equivalent
to the worst case scenario for a day. If the market moves against
a customer's position, Mandus Invest will request additional funds
through a "margin call" for the next day. If there are
insufficient available funds, Mandus Invest will close out the
customer's open positions.
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WHAT IS A "LONG"
OR "SHORT" POSITION?
In trading parlance, a long position is one in which a trader
buys a currency at one price and aims to sell it later at a higher
price (the sometimes elusive buy low, sell high strategy). In
this scenario, the investor benefits from a rising market. A short
position is one in which the trader sells a currency in anticipation
that it will depreciate. In this scenario, the investor benefits
from a declining market. However, it is important to remember
that every FX position involves being long in one currency and
short the other.
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HOW ARE CURRENCY
PRICES DETERMINED?
Currency prices are affected by a variety of economic and political
events and conditions, most importantly interest rates, inflation,
political stability, economic strategy and speculative strategy.
Governments are also active
in the Forex market, attempting to influence the value of their
currencies, either by flooding the market with their domestic
currency in an attempt to lower the price, or conversely buying
in order to raise the price. This is known as Central Bank intervention.
Sometimes the threat of this
action is enough to influence the price. Any of these factors,
as well as very large market orders, can increase both volatility
and currency prices. However, the size and volume of the Forex
market makes it very difficult for any one entity to "move"
the market for very long.
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