Thread: Equity Trading Vs. Forex Trading

Frequently Asked Questions

Please click on the appropriate link below to view the answer to your question:

1. In equities, I need at least $25,000 in my account to day trade, are there any similar restrictions in FX? Click here
   
2. What are the trading hours of the FX market? Click here
   
3. What kind of buying power can I get in the Forex market? Click here
   
4. How much does it cost per transaction? What are your commissions and fees? Click here
   
5. How much does it cost to trade on margin? Click here
   
6. Are there any charges for access to needed software; IE. Charting packages, reporting tools, access to price feeds etc? Click here
   
7. I am used to looking at Quarterly Earnings, what moves the Forex Market? Click here
   
8. Are there dividends in Forex trading? Click here
   
9. Are there any restrictions for short selling? Click here
   

In equities, I need at least $25,000 in my account to day trade, are there any similar restrictions in FX?

There are no restrictions on the size of your account for day trading, although there is a minimum for a standard mini account of $2000. Let us know what your trading goals are. We have accounts to accommodate any budget.

Once your account is open and funded, you are able to open and close positions as frequently as you would like 24 hours a day beginning on Sunday at 5:15pm EST until Friday 4:00pm EST. For more information on Forex trading hours, click here.



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What are the trading hours of the FX market?

The FX Market offers several advantages over the stock market, one of which is its market hours.

Trade Around The Clock

The forex market is a near-seamless 24-hour market. Subject to available liquidity, FXCM offers forex trading from Sunday, starting after 5:15 p.m. ET, until Friday, 4 p.m., ET (FXCM Client Service is available 24/7). With the ability to trade around the clock, currency traders have the advantage of customizing their own trading schedule; they can usually get in or out of the market at any time without waiting for an opening bell or encountering a market gap. While trading stocks after usual market hours is possible, very often that possibility is negated by a lack of order flow or a drastic widening of the bid-ask spread.


What are the most profitable hours to trade?

The time of the day that you are trading can significantly dictate which currency pairs you are going to want to trade. Foreign exchange activity tends to be the most active when markets overlap, particularly the U.S. markets and the major European markets i.e. when it is the morning in New York and the afternoon in London. Below, the major characteristics of the three main markets are outlined:

Tokyo: 7:00pm ET – 3:00am ET / Avg. Daily Volume $150bn
Approximately 10% of all FX trading volume takes place during the Tokyo session. Trading can be relatively thin and hedge funds and banks have been known to use the Tokyo lunch hour to run important stop and option barrier levels. Yen, Kiwi, and Aussie pairs tend to be the biggest movers during Tokyo hours as other currencies are quite thin and usually do not move.

London: 3:00am ET to 11:00am ET / Avg. Daily Volume $570bn
London is by far the most important and influential FX market on the planet, with approximately 30% of all transactions. Most big bank’s dealing desks are run out of London and the market is responsible for roughly 28% of total spot volume. London tends to be the most orderly market due to the large liquidity and ease of completing transactions. Most large market participants use London hours to complete serious FX deals.

New York: 8:00am ET – 4:00pm ET / Avg. Daily Volume $330bn
New York is the second most important market in FX, with approximately 16% of market volume. New York trading is very liquid and is responsible for over 14 % of world FX volume. In the United States spot market, the majority of deals are executed between 8 AM and 12:00 PM, when European traders are still active.

Please click here for an excellent resource regarding FX market hours.


Forex Market Information Easily Accessible

Information about stocks is abundant, but so are the stocks. Finding a trade opportunity in the equities markets may mean sifting through data on thousands of stocks, while forex traders have only six major currencies to research. Additionally, the vital information that moves equity markets, such as revenues and profits, is proprietary and private, and sometimes subject to fraud, deception and insider trading. In contrast, virtually all of the news that bears on the forex market is in publicly disseminated reports from governments or research institutions, and released to everybody at the same time.

The knowledge you've gained in analyzing stocks can be transferred to the forex market. Many of the economic indicators that are familiar to equity traders, such as payroll data and interest rates, affect the currency markets. Many technical traders have found the forex market to be particularly attractive, since currencies respond well to many common technical indicators, such as MACD, RSI, and Candlestick charting.


More Buying Power

Forex trading offers clients a significantly larger amount of buying power than they ever would have trading stocks or equities. FXCM offers a maximum of 50:1* leverage on its forex trading accounts. The maximum leverage for equities rarely surpasses 2:1.
Please click here to learn more about margin and leverage in the forex market.

* Leverage is a double-edged sword and can dramatically amplify your profits. It can also just as dramatically amplify your losses. Trading foreign exchange with any level of leverage may not be suitable for all investors.

Daily Interest on Positions

In stock trading, dividends are the distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders. Normally dividends can be distributed every quarter. In forex however, investors can benefit from earning interest for holding positions at the end of each trading day. This is called “Rollover”.

Please click here (Forex Rollover FAQ) to learn more about Rollover.


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What kind of buying power can I get in the Forex market?

FXCM offers a maximum of 50:1* leverage on its Forex trading accounts. The leverage on your account determines the minimum margin requirement for holding open positions in the market.


Here is example using USD/JPY and how the margin is calculated:

• First note the position size traded. Let’s use a 10k EUR/USD trade quoted at 1.3743
• That contract is worth 10,000 Euros – since that is the first (base) currency in the pair
• At the current market price of 1.3743 you would be financing the purchase of 10,000 Euros with the sale of 13,743 USD since 10,000 Euros = $13,743 based on the current market rate
• The margin required to open the position is then based on the quote price so at $13,743 with 2% margin required (50:1 leverage) you would multiple $13,743 by 0.02 for $274.86.
• However, since the actual market price is always changing a small buffer is added setting the margin requirement at an even $300. This provides client’s stability of pricing when placing trades and managing their accounts.
• Note that the margin requirements vary for each pair; however these are transparent and can be viewed any time from the “Simple Dealing Rates” window.*

*Based on price fluctuations, all margin requirements are subject to change without notice and will be adjusted up or down in increments of
10 units, determined by the account denomination (1000 yen for JPY accounts). At present, FXCM does not anticipate that margin requirements will have to be changed more than once a month. Up-to-date margin requirements are and will continue to be displayed in the "Simplified Dealing Rates" window of the trading platform by currency pair.

Margin can be thought of as a good faith deposit required to hold open positions. This is not a fee or a transaction cost, it is simply a portion of your account equity set aside and allocated as a margin deposit. Margin requirements (per 10K lot) at FXCM are determined by taking a percentage of the notional trade size plus a small cushion. A cushion is added to help alleviate daily/weekly fluctuations.

In the event that funds in the account fall below margin requirements, all open positions are triggered to close. This is designed to prevent clients' accounts from falling into a negative balance, even in a highly volatile, fast-moving market.

You can check the minimum margin requirements for all the pairs and how much each pip is worth for the minimum trading size on your account from the simple dealing rates window on the Trading Station II platform. Take a look at the top left hand corner of the Trading Station II platform, and then click on "Simple Dealing Rates" which is next to "Advanced Dealing Rates". Once there scroll to the right and you will notice "Pip Cost" and "MMR". Pip cost will tell you the value of a pip move for the minimum trading size on your account for any pair, and MMR will give you the minimum margin requirement for the minimum trading size on your account for any pair. Below you can see an example of the simple dealing rates window for a standard account.

If you look in the accounts window on the top right hand corner of the Trading Station II platform, you will see where it says Usd Mr and Usbl Mr.

Usd Mr (Used Margin) is the good faith deposit you put down to hold open positions and Usbl Mr (Usable Margin) is the remaining equity available to open additional positions, as well as sustain any losses. If the market moves in your favor, your Usbl Mr will rise along with your Equity. This is because your Equity is the sum of your Usd Mr and Usbl Mr. Should your Usbl Mr ever move down to zero FXCM’s margin watcher feature will automatically initiate a margin call. During a margin call, all open positions are immediately liquidated at the current market price. The benefit of this feature is it prevents an account from falling to a debit balance. In fact, should the market price at the time of liquidation result in a debit balance, FXCM’s No Debit Policy is to cover that difference by bring the account back to zero.

Your equity is the most accurate reflection of floating profits and losses (or the balance) in your account.

Please note that it is the client’s responsibility to monitor their own margin and manage it accordingly. FXCM does not send clients notifications when their margin is running low. FXCM highly advises its clients against over-leveraging their accounts. When an account is leveraged to a high degree, the probability of receiving a margin call dramatically increases. We believe that using 10:1 effective leverage on an account is a good general rule of thumb. Effective leverage is calculated by dividing the value of open positions by the available equity in the account, or in other words opening no more than one 10K trade for every $1000 in the account.

Please click here for more information about margin and leverage.

* Leverage is a double-edged sword and can dramatically amplify your profits. It can also just as dramatically amplify your losses. Trading foreign exchange with any level of leverage may not be suitable for all investors.

Why is lower leverage important in order to improve one's chances of being successful in the long term?

One of the main reasons that new traders lose money is because they over-leverage their account. When you use excessive leverage, a few losing trades can quickly offset many winning trades. To clearly see how this can happen, consider the following example.

Scenario: We have four different traders trading on different levels of effective leverage.

Questions: What happens to Trader A account equity when the USD/JPY price falls 100 pips against them?

Answer: Trader A loses 41.5% of his account equity.

By using lower leverage, Traders B, C, and D drastically reduce the dollar drawdown of a 100 pip loss. Please keep in mind that it is not uncommon for currency pairs to range at least 100 pips a day. By over-leveraging his account, Trader A has lost almost half of his equity in just one trade. We believe that using 10:1 effective leverage on an account is a good general rule of thumb.

Does lower leverage really work?

FXCM’s experience in Hong Kong, where significantly lower leverage levels are mandated by law, suggests lower leverage results in more successful trading. As another example, many professional traders use up to 8:1 leverage and typically much less. The reason to use low leverage is to make sure that a losing position does not make a significant negative impact on the overall account.


How can I use lower leverage?

To learn more about money management and the benefits of trading with lower leverage, please click here (Lower leverage = better money management - DailyFX Videos) for some video resources that we feel you will find very beneficial!



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How much does it cost per transaction? What are your commissions and fees?

The only cost of trading is the spread, which is the difference between the buy and sell price.

As an example, let’s say that the current Bid-Ask prices for EUR/USD are 1.3750 and 1.3752.

The spread is 2 pips (1 pip = one hundredth of a cent)
(1.3752-1.3750 = 0.0002)

If you are trading 10,000 EUR/USD (10k lot), the cost of the trade is $2.
(10,000 * .0002 = $2.00)

As soon as the trade is open, you will have a floating loss of $2. Any movement in price from that point on is profit or loss on your account.


What is a 10k “lot”?

A lot refers to the smallest available trade size on your account. For FXCM Mini accounts, the smallest size trade is 10,000 units of currency. 10k is short hand for 10,000.

You can think of a “lot” the same way that equity traders think of blocks of shares. While shares of Microsoft (MSFT) are normally bought or sold in 100 share blocks, currencies are sold in 10,000 unit lots. When MSFT stock moves up 1 cent, your 100 block of shares profits $1. When EUR/USD moves up 1 pip (one hundredth of a cent), your 10k trade profits $1.


What is a pip?

“PIP” stands for Point in Percentage. More simply though, a pip is what we in the FX world consider a “point” for calculating profits and losses. When trading a 10k lot, each pip is worth roughly $1. For a more in depth look into what pips mean and how they can be used to calculate potential profit and losses, click here.



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How much does it cost to trade on margin?

There is no charge to trade on margin in FX. In stocks, your broker is loaning you (and expecting the loan returned with interest) the funds to buy the securities. In FX, you place a deposit from your account to keep your trade open. FXCM offers Forex trading accounts up to 50:1 leverage. This means that for a 10,000 unit position, you will need to set aside at least 200 units as used margin. To learn more about Leverage and Margin in the FX market, click here.


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Are there any charges for access to needed software; IE. Charting packages, reporting tools, access to price feeds etc?

Here at FXCM we always have our client’s best interest in mind. That’s we offer all of our platforms along with an abundance of resources to aid your trading for free! This includes but is not limited to:


The award winning Trading Station II platform

As our flagship platform, it has won FX Week’s e-FX Platform of the Year award for two years running (2009 and 2010). With over 170,000 tradable accounts at FXCM, it is our most robust and popular offering. The FXCM Trading Station is equipped with cutting-edge technology, including some of the best execution in the forex industry and the ability to trade directly on charts. Please click here to learn more about what all of our platforms have to offer!


Premium Charting Packages

FXCM's award winning platform, Trading Station II, comes equipped with the Marketscope 2.0 charting package. Marketscope 2.0 has a rich feature set that is comparable to many fee-based charting packages. However, it’s simple to use interface makes it a great solution for both new and experienced traders. In addition to that, we have several complementary free charting packages for traders of all levels that you can access by clicking here!


In Depth Forex News and Analysis

DailyFX.com is your free one stop portal for to-the-point, daily analysis of the forex market! Here our trading professionals diligently work to bring you the latest in technical and fundamental analysis. All live account holders are also entitled access to DailyFX+, which has a number of excellent resources to aid your trading:

1. Trading Signals

2. Technical Analyzers

3. FXCM's exclusive SSI updated twice a day

4. Over 20 hours of educational resources

5. Live Webinars and Q&A with our trading professionals

We want our clients to be profitable in this market because we depend on size and frequency to make money; we thrive on volume. This is why we dedicate an abundance of free resources in an effort to improve client profitability!

Please click here for more information regarding our execution model.



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I am used to looking at Quarterly Earnings, what moves the Forex Market?

As you can imagine, there are many factors that affect currency prices around the world. FXCM’s Forex News and Analysis website DailyFX breaks down the largest factors in the links shown below:

• Trade Flows and Capital Flows

• Interest Rates

• Inflation and CPI

• Geo-Political Events

• Non-Farm Payrolls

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Are there dividends in Forex trading?

Dividends are the distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders. Because investors are speculating on the value of a currency, there are no physical earnings from speculating on the value of a currency that can be distributed in the form of dividends. Instead, investors can benefit for holding positions for extended periods of time by earning interest for investing in a currency pair. This is called “Rollover”.


What is Rollover?

Rollover is the interest paid or earned for holding a position overnight which is Monday – Thursday at 5PM EST. The debit or credit that occurs is a result of the overnight interbank offering rate difference between the two currencies that you are buying and selling in the pair

The target interest rate associated with each currency (generally set by that currency’s Central Bank) is listed on our research website www.dailyfx.com

Here is an example of the rollover rates (on the bottom right of the page):

For a full explanation of rollover and how it works, please click here (Forex Rollover FAQ).


How can I make money by using rollover?

The carry trade is a popular trading strategy used in the forex market whereby speculators buy high-interest-rate-bearing currencies and sell currencies with low interest rates.

These positions ensure that roll-over interest will be posted to the trader's account each trading day.

Below is a chart illustrating a typical example where the carry-trade strategy could be applied. The chart shows a steady increase of the GBP/JPY pair in 2005 and 2006, spawned, among other things, by carry traders going long to obtain the interest-rate differential.

Where can I learn more about the Carry Trade or other strategies?

Every FXCM Live account gains access to the DailyFX+ Forex Trading Courses that contain over 60 videos and 14 different strategies, including an entire section devoted to the Carry Trade! Also please click here (Carry Trade Survival Kit) for the head of our DailyFX.com research team’s take on the carry trade.



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Are there any restrictions for short selling?

When you sell a stock short you are borrowing shares from a brokerage house and selling them to another buyer. Proceeds from the sale go into the shorter's account. At some point you would buy those shares back and return them to the lender. One can only sell a stock short when that stock is in an "uptick", or in other words while the stock is appreciating in value. Because you are borrowing and selling these shares, any dividends that are paid out for that stock during the life of the contract would have to be paid out by you. It works much differently when you short a currency pair.

There are no restrictions with regards to short selling in FX; it is just as easy to sell a currency pair as it is to buy a currency pair. In fact, here at FXCM there are no trading restrictions whatsoever; you can utilize any strategy you’d like, which includes day trading, scalping, and trading the news. You can short as many currencies as you wish as long as the market is open, and as long as you have sufficient margin to hold the open positions.

Over 3.5 trillion dollars a day are traded in the FX market; and since you are trading spot currency as opposed to shares you don’t need to find a broker to allow you to borrow stock to short sell in the FX market.

Please click here for more information regarding our execution model.


What are the advantages of having the capability to “short sell” in FX?

It is important to remember that there is no true “bear” market in FX. When you are speculating on a currency pair you are always buying one pair, and selling the other. For example, when you “buy” the EUR/USD pair, you are buying EUR and selling USD, because you are speculating that the EUR is appreciating against the USD. When you “sell” EUR/USD, you are buying USD and selling EUR, because you are speculating that the USD is going to appreciate against the EUR. That is why you do not see a EUR/USD and a USD/EUR pair; they are synonymous. The base currency (first currency in the pair) is always the currency that is valued higher than the cross currency (second currency in the pair).

Having the ability to both “buy” a pair or “sell” a pair means more trading opportunities and more aptitude to diversify your portfolio!

Please click here for more information regarding current forex correlations.


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