INTRODUCTION TO FOREX
"Forex" and "FX" are simply abbreviations of "foreign exchange" and in the context of this website generally refers to off-exchange retail foreign currency markets. The forex market is not a "market" in the traditional sense due to the fact that there is no centralized location for forex trading activity and, therefore, trades placed in the forex market are considered over-the-counter (OTC) or "off exchange".
VAM FOREX clients can trade through online forex trading platforms and/or over the telephone. Margins for forex trading are generally 1% of the contract value, but may vary by FCM/Dealer. It is important to note that highly leveraged trading is a double-edge sword and can lead to large losses as well as gains. For more information about margins and leverage, please click the following links: how margins work risk disclosures
Five major currencies dominate trading in the foreign exchange markets: the U.S. Dollar, Eurocurrency, Japanese Yen, Swiss Franc and British Pound. The foreign currencies are traded in pairs, also known as crosses, in the forex spot market. For example, purchasing the EUR/USD in the forex spot market simply means the purchaser is buying the Eurocurrency and selling the U.S. Dollar in anticipation of the Eurocurrency gaining value in relation to the U.S. Dollar. Similarly, the seller of a EUR/USD contract would be selling the Eurocurrency against the U.S. Dollar. The "spot" market simply refers to a currency contract with a prompt valuation date requiring settlement within two business days.
Over the past several decades, an increase in international trade and foreign investment has made the economies of the world more interrelated. New opportunities for investors have also been created with the fall of communism and the dramatic growth of the Asian and Latin American economies. Today, supply and demand for a particular currency is the driving factor in determining exchange rates. Many factors such as regularly reported economic figures and unexpected news reports, such as disasters or political instabilities, could also alter the desirability of holding a particular currency, thus influencing international supply and demand for that currency.
IMPORTANT NOTE: VAM FOREX customers transact in off-exchange retail forex markets and NOT the interbank market. The true forex interbank market is a cash interbank/interdealer market in which currencies are traded directly between banks, foreign currency dealers and individual investors with larger-sized accounts than the typical retail account. To be a true interbank market participant, one must be trading directly with the banks and other interbank market participants.
Customers must understand that the respective FCM/OTCFX Dealer holding the customer's funds also provides the quotes to the customer and acts as counterparty to the customer's trades. Therefore, the customer trades with the FCM/Dealer and is not a direct trading participant in the forex interbank market.
Related Pages:
Trading Resources and Strategies
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