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Characteristics of Margin Foreign Exchange Trading

Posted By Robert On Thursday, January 16th, 2014 With 0 Comments

Definition

Foreign exchange is essentially the exchanging of one currency for another. The possibilities and potential of margin foreign exchange are endless with access into a market this size. Until recently, this market simply was not accessible to the smaller to medium sized investor. Unless one had the financial strength to deposit millions of dollars and establish credit lines with international banks, interbank prices could not be obtained for anything less than 500,000 USD to an established corporate customer.

The internet has changed all this and now the internet is awash with forex brokers offering foreign exchange trading. Forex brokers handle everything from dealing quotes and executions, right on through to your buy and sell orders.

Interbank Dealing Prices

Dealing prices quoted to you are those prevailing in the interbank foreign currency market. When you request a price, you simply log onto your web platform and you will be quoted both a “bid” and “offer” price in line with the interbank market. You are gaining access to the professional currency market at the wholesale dealing spreads without the need to be a major corporation, bank or financial institution and without the need for bank credit lines.

Access to 24 hour market

The foreign exchange market unlike futures markets does not close throughout the week. You may deal 24 hours a day, or leave orders to be watched around the clock. Our desk opens from 6 a.m. Sydney time on Monday until 9am on Saturday morning (New York close).

Orders and executions occur on a 24-hour basis and clients can call, and are encouraged to call anytime day or night. The desk is staffed throughout European and New York hours and our night dealers are in constant contact with Banks in London and New York throughout the night.

Non-Standard Amounts and Settlement Dates

Unlike futures contracts, there are no pre-set amounts and settlement dates. You may deal in any amounts at or above the minimum transaction size. Transaction size varies from currency to currency although as an indication, the minimum size is 100,000 of the traded base currency.

Cross Rates

All forex brokers also gives you access to also trade in cross rates. Cross rates are rates that are not quoted against the USD. Examples are EUR/AUD, AUD/JPY, AUD/NZD, AUD/GBP, EUR/JPY, EUR/CHF, EUR/GBP, GBP/CHF, GBP/JPY, NZD/JPY, NZD/CAD, etc., etc., etc. The combination possibilities are extensive and this enables clients to take any trading opportunities as they arise.

Differences between margin foreign exchange and futures contracts

Foreign exchange can be traded on various overseas exchanges. The most prominent point, being the International Monetary Market (or the IMM) in Chicago. Future’s contracts in currencies are now also traded on the Sydney Futures Exchange and while some similarities can be drawn, basic differences do exist. The most obvious differences of the FX market are:

  1. Interbank dealing prices
  2. Dealing in cross rates – not everything done over the USD
  3. Dealing in odd-sized amounts -no pre-set amounts, No expiration dates, use as a hedge
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