40. Forex FAQs

Here are a list of frequently asked questions in Forex. This list is put up under the assumption that you are already aware of the basics of Forex and trading related terms.

Is the Forex Market Regulated?

Yes it is. Forex market operates in a decentralized manner which means there is no central exchange in place. There are regulating bodies for Forex market who are responsible for ensuring all market participants follow the rules and standards set by them. While choosing your broker you should ensure that the broker or the firm is regulated.

What are the most commonly traded currency pairs?

Following are the currency pairs which are popular in the Forex market:

EUR/USD – Euro/U.S. Dollar

USD/JPY – U.S. Dollar/Japanese Yen

GBP/USD – British Pound/U.S. Dollar USD/CHF – U.S. Dollar/Swiss Franc

AUD/USD – Australian Dollar/U.S. Dollar

USD/CAD – U.S. Dollar/Canadian Dollar

NZD/USD – New Zealand Dollar/U.S. Dollar

Where do I learn about Forex technical analysis?

There are lot of free online tutorials available on Forex Technical Analysis.  You can also go for paid classes and books if you are keener on classroom trainings. Make sure you make use of the demo trading accounts to understand and implement the technical analysis principles you learnt.

What is a currency swap?

A currency swap involves the exchange of principal amount in one currency for another currency.  Consider a trader A, who requires sterling (£) and trader B who requires USD ($). A gets into a swap with B, receives 10£ and pays 7% fixed interest rate in sterling, i.e. Interest amount = 7% of 10£. Similarly since B requires USD, it goes into a swap with A and pays an interest of 4% on say 10$.  Also bear in mind that A and B can be financial institutions or individuals.

Is Forex trading done over the weekends?

Forex trades do happen over the weekend but the spreads are really huge. It is not a full-fledged trading, but most brokers let you trade over the weekend.

What is ECN?

ECN stands for electronic communication network. ECN is the bridge between market participants. ECN connects all the participants so that they can directly deal with each other eliminating the need for a centralized system.

What is MetaTrader?

MetaTrader 4, also known as MT4, is an electronic trading platform widely used by foreign exchange traders. It was developed by MetaQuotes Software. This software is provided by the brokers to their traders.

Do I need software to be installed on my computer before I trade Forex?

Trading platforms can be either installed directly on the local computer of the trader or it can be web based. This depends on the brokers. With web based trading system, traders can directly use the platform without any installation. And yes of course you would need internet access.

What is a pip?

Pip stands for percentage in point. It is the unit of a change in the price of a currency pair. Most of the currency pairs are quoted up to the 4th decimal point. Pip is actually the change in the 4th decimal point.

What is a spread?

Spread is nothing but the difference in buy and the sell price of a currency pair.