FOREX.com: No debit balances, no margin calls

At FOREX.com, your risk is only limited to funds on deposit. There are no margin calls in forex trading, so if your account falls below required levels, for your protection we will close out all positions automatically. You'll never lose more money than you have in your account.

More leverage means more opportunity - and more risk

It's crucial to remember: increasing leverage increases risk. To limit downside risk, monitor your account regularly and use stop-loss orders on every open position.

Calculating Profit and Loss

For ease of use, most online trading platforms automatically calculate the P&L of a traders' open positions. However, it is useful to understand how this calculation is formulated:

To illustrate an FX trade, consider the following two examples. Let's say that the current bid/ask for EUR/USD is 1.46160/190, meaning you can buy 1 euro for 1.46190 or sell 1 euro for 1.46160.  Suppose you decide that the Euro is undervalued against the US dollar. To execute this strategy, you would buy Euros (simultaneously selling dollars), and then wait for the exchange rate to rise. So you make the trade: to buy 100,000 Euros you pay 146,190 dollars (100,000 x 1.46190). Remember, at 1% margin, your initial margin deposit would be approximately $1,461 for this trade.  As you expected, Euro strengthens to 1.46230/260. Now, to realize your profits, you sell 100,000 Euros at the current rate of 1.46230, and receive $146,230  You bought 100k Euros at 1.46190, paying $146,190. Then you sold 100k Euros at 1.46230, receiving $146,230. That's a difference of 4 pips, or in dollar terms ($146,190 - 146,230 = $40).  Total profit = US $40.  Now in the example, let's say that we once again buy EUR/USD when trading at 1.46160/190. You buy 100,000 Euros you pay 146,190 dollars (100,000 x 1.46190).  However, Euro weakens to 1.46110/140. Now, to minimize your loses to sell 100,000 Euros at 1.46110 and receive $146,110.  You bought 100k Euros at 1.46190, paying $146,190. You sold 100k Euros at 1.46110, receiving $146,110. That's a difference of 8 pips, or in dollar terms ($146,190 - $146,110 = $80).

How Forex Works

The currency exchange rate is the rate at which one currency can be exchanged for another. It is always quoted in pairs like the EUR/USD (the Euro and the US Dollar). Exchange rates fluctuate based on economic factors like inflation, industrial production and geopolitical events. These factors will influence whether you buy or sell a currency pair.

Example of a Forex Trade:

The EUR/USD rate represents the number of US Dollars one Euro can purchase. If you believe that the Euro will increase in value against the US Dollar, you will buy Euros with US Dollars. If the exchange rate rises, you will sell the Euros back, making a profit. Please keep in mind that forex trading involves a high risk of loss. 

Why Trade Currencies?

Forex is the world's largest market. With about 3.2 trillion US dollars in daily volume and 24-hour market action, we believe it is a true "step above" the equities market for the serious trader. Some key differences are:

• Many firms don't charge commissions – you pay only the bid/ask spreads.
• There's 24 hour trading – you dictate when to trade and how to trade.
• You can trade on leverage, but this can magnify potential gains and losses.
• You can focus on picking from a few currencies rather then from 5000 stocks.
• Forex is accessible – you don’t need a lot of money to get started.

Why Currency Trading Is Not For Everyone

Trading foreign exchange on margin carries a high level of risk, and may not be suitable for everyone. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. Remember, you could sustain a loss of some or all of your initial investment, which means that you should not invest money that you cannot afford to lose. If you have any doubts, it is advisable to seek advice from an independent financial advisor.

FOREX.com: No debit balances, no margin calls

At FOREX.com, your risk is only limited to funds on deposit. There are no margin calls in forex trading, so if your account falls below required levels, for your protection we will close out all positions automatically. You'll never lose more money than you have in your account.

Leverage & Margin

Leverage trading, or trading on margin, means you aren't required to put up the full value of the position. 

Forex trading offers more leverage than stocks or futures - up to 200 times the value of your account. Of course keep in mind that increased leverage also increases your risk.

What's a pip?

Forex prices are often so liquid, they're quoted in tiny increments called pips, or "percentage in point". A pip refers to the fourth decimal point out, or 1/100th of 1%.

For Japanese yen, pips refer to the second decimal point. This is the only exception among the major currencies.

Bids, asks and the spread

Just like other markets, forex quotes consist of two sides, the bid and the ask: 

The BID is the price at which you can SELL base currency.
The ASK is the price at which you can BUY base currency

Cross currencies

Currency pairs that don't involve USD at all are called cross currencies, but the premise is the same.

Majors not based on the US dollar

The three exceptions to this rule are the British pound (GBP), the Australian dollar (AUD) and the Euro (EUR). For these pairs, where USD is not the base currency, a rising quote means the US dollar is weakening and buys less of the other currency than before.

In other words, if a currency quote goes higher, the base currency is getting stronger. A lower quote means the base currency is weakening.

Understanding Forex Quotes

Reading a foreign exchange quote is simple if you remember two things:

1. The first currency listed is the base currency
2. The value of the base currency is always 1.

As the centerpiece of the forex market, the US dollar is usually considered the base currency for quotes. When the base currency is USD, think of the quote as telling you what a US dollar is worth in that other currency.

When USD is the base currency and the quote goes up, that means USD has strengthened in value and the other currency has weakened. Rising quotes mean a US dollar can now buy more of the other currency than bef

The world's most traded market, trading 24 hours a day

With average daily turnover of US$3.2 trillion, forex is the most traded market in the world.

A true 24-hour market from Sunday 5 PM ET to Friday 5 PM ET, forex trading begins in Sydney, and moves around the globe as the business day begins, first to Tokyo, London, and New York.

Unlike other financial markets, investors can respond immediately to currency fluctuations, whenever they occur - day or night.

Who trades currencies, and why?

Daily turnover in the world's currencies comes from two sources:

• Foreign trade (5%). Companies buy and sell products in foreign countries, plus convert profits from foreign sales into domestic currency.
  
  
• Speculation for profit (95%).

Most traders focus on the biggest, most liquid currency pairs. "The Majors" include US Dol

What's Forex?

"Forex" stands for foreign exchange; it's also known as FX. In a forex trade, you buy one currency while simultaneously selling another - that is, you're exchanging the sold currency for the one you're buying. The foreign exchange market is an over-the-counter market.

Currencies trade in pairs, like the Euro-US Dollar (EUR/USD) or US Dollar / Japanese Yen (USD/JPY). Unlike stocks or futures, there's no centralized exchange for forex. All transactions happen via phone or electronic network.