Frequently Asked Questions

1) What is the Foreign Exchange Market?
the world, with a daily average turnover of approximately US$2 trillion. The foreign exchange market exists wherever one currency is traded for another. It includes trading between large banks, central banks, currency speculators, multinational corporations, governments, and other financial markets and institutions. Individual retail traders are a small fraction of this market and participate indirectly through brokers. Although exchange rates are affected by many factors, in the end, currency prices are a result of supply and demand forces. The world's currency markets can be viewed as a huge melting pot: in a large and ever-changing mix of current events, supply and demand factors are constantly shifting, and the price of one currency in relation to another shifts accordingly. No other market encompasses (and distills) as much of what is going on in the world at any given time as foreign exchange. Supply and demand for any given currency, and thus its value, are not influenced by any single element, but rather by several. These elements generally fall into three categories: economic factors, political conditions and market psychology. Foreign exchange has developed into an asset class (a type of investment such as stocks or bonds). This is partly because it is uncorrelated to any other asset class. As the world's largest over-the-counter market, foreign exchange is attractive to investors due to its deep liquidity, volatility, and low-cost per Trade.

2) Where is the Central Location of the Foreign Exchange Market?
FX Trading is not centralized on an exchange or clearing house, as are the stock and futures markets. The Foreign Exchange market is considered an Over the Counter (OTC) or "inter bank" market, because these that transactions are conducted between two counterparties over the telephone or an electronic network. The biggest geographic Foreign Exchange trading centre is the United Kingdom, primarily London. Other large centers include the United States, Japan and Singapore . Most of the remainder is accounted for by trading in Germany, Switzerland, Australia, Canada, France and Hong Kong.

3) What are Currency Pairs and How Do They Work?
Foreign Exchange trading involves the simultaneous buying of one currency and the selling of another. The world's currencies are on a floating exchange rate and are always traded in pairs, for example Euro/Dollar or Dollar/Yen. Currency Pairs are traded against each other, meaning that the value of one currency is determined by its comparison to another currency. Currency Pairs are traditionally noted in the internationally recognized three-letter codes for the currencies involved: XXX/YYY. Forex trades involve the simultaneous buying of one currency and selling of another, but each pair of currencies constitute an individual product that is itself bought and sold on the Foreign Exchange market. For instance, a price quote for EUR/USD gives the price of the Euro expressed in US dollars, as in 1 euro = 1.3045 dollar. The internationally recognized symbols for some of the most commonly traded currencies are:
          - EUR Euros
          - USD United States dollar
          - CAD Canadian dollar
          - GBP British pound
          - JPY Japanese yen
          - AUD Australian dollar
          - CHF Swiss franc.
If you buy a Currency Pair, you buy the base currency and sell the quote currency. The bid (sell price) represents how much of the quote currency is needed for you to get one unit of the base currency. Conversely, when you sell a Currency Pair, you sell the base currency and receive the quote currency. The ask (buy price) for the Currency Pair represents how much you will get in the quote currency for selling one unit of base currency. For example, if the USD/EUR Currency Pair is quoted as being USD/EUR = 1.5 and you purchase the pair, this means that for every 1.5 Euros that you sell, you purchase (receive) US$1. If you sold the Currency Pair, you would receive 1.5 Euros for every US$1 you sell. The inverse of this currency quote is EUR/USD, and the corresponding price would be EUR/USD = 0.667, meaning that US$0.667 would buy 1 euro.

4) How are Currency Prices Determined?
As mentioned above, currency prices are determined primarily by supply and demand factors. See, "What Is The Foreign Exchange Market?" above. These factors are controlled and affected by a variety of economic and political conditions, most importantly interest rates, inflation and political stability. Moreover, governments sometimes participate in the Foreign Exchange market 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. Other such factors include the flow of imports and exports in a particular country, a country's trade balance, the flow of capital into and out of a country, relative inflation rates, governmental policies aimed at limiting a currency's exchange rate fluctuations, the difference in interest rates between countries (known as the yield differential), and rates of inflation. Any of these factors, as well as large market orders, can cause high volatility in currency prices. However, the size and volume of this market makes it impossible for any one entity to "drive" the market for any length of time.

5) When is the Foreign Exchange Market Open for Trading?
The Foreign Exchange market is a true 24-hour market. Trading begins each day in Sydney , and moves around the globe as the business day begins in each financial center, first to 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. Forex market is open from 22:00 GMT Sunday (opening of Australia trading session) till 22:00 GMT Friday (closing of USA trading session).

6) Is Foreign Exchange Trading Capital Intensive?
No. Ikon FX requires a minimum deposit of $100. The margin we grant is 1:100 and in certain instances we grant 1:200 margin. However, 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.

7) Who are the participants in the forex market?
The main participants in the forex market are banks, commercial companies, individual investors and traders and broker. Besides that, option, futures trader and fund manager are also involved in this huge market.

8) Leverage
Leverage is the ability to gear your account into a position greater than your total account margin. For instance, if a trader has $1,000 of margin in his account and he opens a $100,000 position, he leverages his account by 100 times, or 100:1. If he opens a $200,000 position with $1,000 of margin in his account, his leverage is 200 times, or 200:1. Increasing your leverage magnifies both gains and losses. To calculate the leverage used, divide the total value of your open positions by the total margin balance in your account. For example, if you have $10,000 of margin in your account and you open one standard lot of USD/JPY (100,000 units of the base currency) for $100,000, your leverage ratio is 10:1 ($100,000 / $10,000). If you open one standard lot of EUR/USD for $150,000 (100,000 x EURUSD 1.5000) your leverage ratio is 15:1 ($150,000 / $10,000).

9) Margin
Margin is the amount of cash or other eligible collateral that broker requires in a customer's account to open or to maintain an open Foreign Exchange position. If the customer's open position worsens and his or her account does not have funds equal to or more than the required margin amount, broker will initiate a margin call. When this occurs, the customer must either deposit more money into the account or close out the position. The broker trading system will automatically calculate margin requirements for current open positions and check for margin availability before allowing the execution of a new trade.

10) Pip
PRICE INTEREST POINT. The smallest price increment a currency can make. Also known as points. For example, 1 pip = 0.0001 for EUR/USD or 0.01 for USD/JPY.

11) Pip Value
The value of a pip. Pip value can be either fixed or variable depending on the currency pair. e.g. The pip value for EUR/USD is always $10 for standard lots, $1 for mini-lots and $0.10 for micro lots.

12) Spread
The difference between the sell quote and the buy quote or the bid and offer price. For example, if EUR/USD quotes read 1.3200/03, the spread is the difference between 1.3200 and 1.3203, or 3 pips. In order to break even on a trade, a position must move in the direction of the trade by an amount equal to the spread.

13) Rollover
A spot transaction is generally due for settlement within two business days (the value date). The cost of rolling over a transaction is based on the interest rate differential between the two currencies in a transaction. If you are long (bought) the currency with a higher rate of interest you will earn interest. If you are short (sold) the currency with a higher rate of interest you will pay interest. Most brokers will automatically roll over your open positions allowing you to hold your position indefinitely.

14) Swap
currency swap is the simultaneous sale and purchase of the same amount of a given currency at a forward exchange rate.

15) What does it mean have a 'long' or 'short' position?
Long Position - A position in which the trader attempts to profit from an increase in price. I.e. Buy low, sell high.
Short Position - A position in which the trader attempts to profit from a decrease in price. I.e. Sell high, buy low.

16) What is the difference between an "intra-day" and an "overnight" position"?