Trading foreign currencies is a challenging and potentially profitable opportunity for educated and experienced investors. However, before deciding to participate in the Forex market, you should carefully consider your investment objectives, level of experience and risk appetite. Most importantly, do not invest money you cannot afford to lose.
There is considerable exposure to risk in any foreign exchange transaction. Any transaction involving currencies involves risks including, but not limited to, the potential for changing political and/or economic conditions that may substantially affect the price or liquidity of a currency. Moreover, the leveraged nature of FX trading means that any market movement will have an effect on your deposited funds proportionally equal to the leverage factor. This may work against you as well as for you. The possibility exists that you could sustain a total loss of initial margin funds and be required to deposit additional funds to maintain your position. If you fail to meet any margin call within the time prescribed, your position will be liquidated and you will be responsible for any resulting losses. Investors may lower their exposure to risk by employing risk-reducing strategies such as 'stop-loss' or 'limit' orders.
There are also risks associated with utilizing an internet-based deal execution software application including, but not limited, to the failure of hardware and software and communications difficulties.
The Forex Market is the largest and most liquid financial market in the world. Since macroeconomic forces are one of the main drivers of the value of currencies in the global economy, currencies tend to have the most identifiable trend patterns. Therefore, the Forex market is a very attractive market for active traders, and presumably where they should be the most successful. However, success has been limited mainly for the following reasons:
Many traders come with false expectations of the profit potential, and lack the discipline required for trading. Short term trading is not an amateur's game and is not the way most people will achieve quick riches. Simply because Forex trading may seem exotic or less familiar then traditional markets (i.e. equities, futures, etc.), it does not mean that the rules of finance and simple logic are suspended. One cannot hope to make extraordinary gains without taking extraordinary risks, and that means suffering inconsistent trading performance that often leads to large losses. Trading currencies is not easy, and many traders with years of experience still incur periodic losses. One must realize that trading takes time to master and there are absolutely no short cuts to this process.
The most enticing aspect of trading Forex is the high degree of leverage used. Leverage seems very attractive to those who are expecting to turn small amounts of money into large amounts in a short period of time. However, leverage is a double-edged sword. Just because one lot ($10,000) of currency only requires $100 as a minimum margin deposit, it does not mean that a trader with $1,000 in his account should be easily able to trade 10 lots. One lot is $10,000 and should be treated as a $100,000 investment and not the $1000 put up as margin. Most traders analyze the charts correctly and place sensible trades, yet they tend to over leverage themselves (get in with a position that is too big for their portfolio), and as a consequence, often end up forced to exit a position at the wrong time.
For example, if your account value is $10,000 and you place a trade for 1 lot, you are in effect, leveraging yourself 10 to 1, which is a very significant level of leverage. Most professional money managers will leverage no more then 3 or 4 times. Trading in small increments with protective stops on your positions will allow one the opportunity to be successful in Forex trading.
Fast Market Policy
The spot foreign exchange market, at times, exhibits extreme price volatility, a condition known as a "fast market". Fast market conditions may be caused by various factors including, but not limited to, news releases such as non-farm payroll numbers, order imbalances-significantly greater orders of one type (e.g., "buys") than another type (e.g., "sells").
During the extreme price volatility in fast markets, currency pair prices will "gap" and spreads widen. A price gap occurs when the price of a currency pair either jumps or plummets from its last bid/offer quote to a new quote, without ever trading at prices in between those quotes. As an example, the Euro/US Dollar currency pair may move from a bid/offer of 1.1891 – 1.1894 and begin trading at 1.1941 – 1.1944, without ever trading at the prices between those quotes.
The standard industry practice for currency dealers, including dealers on the interbank market, during fast market conditions and price gaps, is to set market levels and execute orders manually without the use of automated systems or services. The process during fast markets is typically:
- Initially, major money center banks and other online price providers halt all direct dealing and their pricing engines are suspended,
- Currency dealers analyze event and determine the correct price,
- Prices enter market 20-30 pips wide or more,
- Spreads in market narrow as more currency dealers enter the market.
In such an event, there may be a delay in trade execution, which may be significant, while rates are cross-referenced to ensure valid execution. Further, stops placed close to a market that has traded through the stop price are re-priced on the next best tradable price. Thereby, a specified rate order does not provide a fixed-price guarantee to the counterparty.
Gain Scope, like all currency dealers, is a "request for quote" dealer, and follows industry standards for fast market conditions. Gain Scope’ clients that elect to trade during fast market conditions are responsible for losses incurred by their account because of such trading, as clients are responsible during normal trading conditions. These responsibilities are the same responsibilities that Gain Scope has with its interbank counterparties during normal and fast market conditions. Gain Scope will not be held liable for any losses due to fast or volatile markets, electronic disruption in service, service delays, incorrect information received from service vendors (i.e., quotations, news services) and/or customers (i.e., client profile data, updated data).
Additional Services for FXDealer White Label (MT4 Special)
If you are request to use our special service called MT4 Special, We add one extra pip spread on our FXdealer White Label for this extra service we provide to our clients.
Trading Execution Risks
We aims to provide clients with the best pricing available and to get all orders filled at the requested rate. However, there are times when, due to an increase in volatility or volume, orders may be subject to slippage. This most commonly occurs during fundamental news events.
The volatility in the market may create conditions where orders are difficult to execute, since the price might be many pips away due to the extreme market movement. Although the trader is looking to execute at a certain price, the market may have moved significantly and the order would be filled at the next best price or the fair market value. Similarly, increased volume may also result in slippage if sufficient liquidity does not exist to execute all trades at the requested rate.
The concept of slippage is not unique to the forex market, as it often occurs in the equities and futures markets.
Once a stop is triggered, it becomes an At Best market order, and there is no guarantee it will be filled at any particular given price. Therefore, stop orders may incur slippage depending on market conditions.
Our company has obtained close banking relationships with some of the world's largest and most aggressive price providers. Having multiple price providers is especially important in volatile markets, when one or two banks may post wide spreads, or simply avoid quoting any price at all. With so many major banks quoting prices to Us, there are competitive spreads and fills, even during market-moving news events.
Delays in Execution
A delay in execution may occur for various reasons, such as technical issues with the trader's internet connection to our servers, which may result in hanging orders. The Platform on a trader's computer may not be maintaining a constant connection with our servers due to a lack of signal strength from a wireless or dialup connection. A disturbance in the connection path can sometimes interrupt the signal, and disable the platform, causing delays in transmission of data between the trader's platform and our server. One way to check your internet connection with our server is to ping the server from your computer.
Market volatility creates conditions that make it difficult to execute orders at the given price due to an extremely high volume of orders. By the time orders are able to be executed, the bid/ask price at which a counterparty is willing to take a position may be several pips away.
In cases where the liquidity pool is not large enough to fill a Market Range order, the order will be rejected. For Limit Entry or Limit Orders, the order would be rejected and reset until the order can be filled. We offers the At Best order type for traders who wish to avoid this situation.
We strives to provide traders with tight, competitive spreads; however, there may be instances when spreads widen beyond the typical spread. During news events spreads may widen substantially in order to compensate for the tremendous amount of volatility in the market. The widened spreads may only last a few seconds or as long as a few minutes. We strongly encourages traders to utilize caution when trading around news events and always be aware of their account equity, usable margin and market exposure. Widened spreads can adversely affect all positions in an account.
During periods of high volume, hanging orders may occur. This is a condition where an order sits in the "orders" window after it has been executed. The order will be highlighted, and the Status will indicate "executed" or "processing." Generally, the order has been executed, but it is simply taking a few moments for it to be confirmed by the banks. During periods of heavy trading volume, it is possible that a queue of orders will form. That increase in incoming orders may sometimes create conditions where there is a delay from the banks in confirming certain orders. Depending upon the type of order placed, outcomes may vary. If this is a Market Range order and the order cannot be filled within the specified range, or if the delay has passed, the order will be rejected. If it is an At Best order, every attempt will be made to fill the order at the next best available price in the market. In both situations, the "status" in the "orders" window will typically indicate "executed" or "processing." The trade will simply take a few moments to move to the "open positions" window. Depending upon the order type, the position may in fact have been executed, and the delay is simply due to heavy internet traffic.
Keep in mind that it is only necessary to enter any order once. Multiple entries for the same order may slow or lock your computer or inadvertently open unwanted positions.
Trading Desk Hours
The quoted hours for the Trading Desk are from Sunday 5:00 PM (EST) through Friday 4:00 PM (EST). The open or close times may be altered by the Trading Desk because it relies on prices being offered by banks and financial institutions that provide liquidity for Us.
Outside of these hours, most of the major world banks and financial centers are closed. The lack of liquidity and volume during the weekend impedes execution and price delivery.
Prices Updating Before the Open
Shortly prior to the open, the Trading Desk refreshes rates to reflect current market pricing in preparation for the open. At this time, trades and orders held over the weekend are subject to execution. Quotes during this time are not executable for new market orders. After the open, traders may place new trades, and cancel or modify existing orders.
Please be aware that during the first few hours after the open, the market tends to be thinner than usual until the Tokyo and London market sessions begin. These thinner markets may result in wider spreads, as there are fewer buyers and sellers. This is largely due to the fact that for the first few hours after the open, it is still the weekend in most of the world.
Sunday's opening prices may or may not be the same as Friday's closing prices. At times, the prices on the Sunday open are near where the prices were on the Friday close. At other times, there may be a significant difference between Friday's close and Sunday's open. The market may gap if there is a significant news announcement or an economic event changing how the market views the value of a currency. Traders holding positions or orders over the weekend should be fully comfortable with the potential of the market to gap. One of the great things about trading at our company is that outside of announced major holidays, the trading hours routinely close only once a week on the weekends, which corresponds with the hours of major banks and financial institutions. In contrast, most stock exchanges close five times each week, and can gap significantly on each day's open.
Limit orders are often filled at the requested price. If the price requested is not available in the market, the order will not be filled. If the requested price of a stop order is reached at the open of the market on Sunday, the order will become a market order. Limit Entry orders are filled the same way as limit orders. Stop Entry orders are filled the same way as stops.
Traders who fear that the markets may be extremely volatile over the weekend, that gapping may occur, or that the potential for weekend risk is not appropriate for their trading style, may simply close out orders and positions ahead of the weekend.
The idea of margin trading is that your margin acts as a good faith deposit to secure the larger notional value of your position. Margin trading allows traders to hold a position much larger than the actual account value. Our online trading platform has margin management capabilities, which allow for this high leverage. Of course, trading on margin comes with risk, since high leverage may work against you as much as it works for you. If account equity falls below margin requirements, Our platform will trigger an order to close the open positions. When positions have been over-leveraged or trading losses are incurred to the point that insufficient equity exists to maintain current open positions, a margin call will result, and open positions must be liquidated.
Please keep in mind that when the account's useable margin reaches zero, all open positions are triggered to close. The margin-call process is entirely electronic.
Example: A trader in USD/JPY has $10,000 in a standard account and his margin requirement is 1% (i.e., he has leverage of 100:1). For each position he opens (each position = 1 lot = 100,000 notional value), he is required to set aside $1000 in used margin. If he opens two positions, his required margin is $2000. The trader can lose up to $8000 before he starts dipping into his margin requirement. When his account equity reaches $2000, a margin call is triggered and the biggest position will be closed one by one automatically.
The margin requirements are generally $1,000 per lot for Standard accounts (lot size of 100,000). It is strongly advised that clients maintain the appropriate amount of margin in their accounts at all times.