A:

The forex market is where currencies from around the world are traded. In the past, currency trading was limited to certain individuals and institutions. This is because the funds required are significantly higher than any other investment instrument. However, with the development of electronic trading networks and margin accounts, this has changed. Although nearly 75% of forex trading is done by large banks, individuals are now able to invest in forex with as little as $1,000.

The development of the margin account and the use of leverage has made it easier for individuals to trade in forex. By using a margin account, investors essentially borrow money from their brokers. Margin accounts can also be used by investors to trade in equity securities. The main difference between trading equities and trading forex on margin is the leverage that is provided. For equity securities, brokers usually offer a 2:1 leverage to investors. On the other hand, forex traders are offered between 50:1 and 200:1 leverage. This means that traders need to deposit between $250 and $2,000 to trade positions of $50,000 to $100,000. (To learn more, see the Margin Trading tutorial.)

Credit card deposits have by far become the easiest way for investors to deposit funds into trading accounts. Since the development of online payment services, online credit card transfers have become increasingly efficient and secure. Investors can simply log in to their respective forex accounts, type in their credit card information and the funds will be posted in about one business day.

Forex traders are usually given several options when deciding how they will deposit funds into their margin accounts. Investors can simply deposit funds into their trading accounts from an existing bank account or send the funds through a wire transfer or online check. Traders are also usually able to write a check directly to their forex brokers. The only problem with using these other methods is the amount of time that is needed to process the payments. For example, paper checks can be held for up to 10 business days before being added to a trading account.

To learn more, see A Primer On The Forex Market, Getting Started In Forex and Wading Into The Currency Market.

RELATED FAQS
  1. How does margin trading in the forex market work?

    When an investor uses a margin account, he or she is essentially borrowing to increase the possible return on investment. ... Read Answer >>
  2. What types of accounts are available for forex trading?

    There are many different types of forex accounts available to the retail forex trader. Demo accounts are offered by forex ... Read Answer >>
  3. How does leverage work in the forex market?

    The concept of leverage is used by both investors and companies. Investors use leverage to significantly increase the returns ... Read Answer >>
  4. In the forex market, how is the closing price of a currency pair determined?

    The foreign exchange market, or forex, is the market in which the currencies of the world are traded by governments, banks, ... Read Answer >>
Related Articles
  1. Trading

    10 Ways To Avoid Losing Money In Forex

    When approached as a business, forex trading can be profitable and rewarding. Find out what you need to do to avoid big losses as a beginner.
  2. Trading

    The Pros & Cons Of A Forex Trading Career

    Trading foreign currencies can be lucrative, but there are many risks. Investopedia explores the pros and cons of forex trading as a career choice.
  3. Trading

    Top Reasons Forex Traders Fail

    This market can be treacherous for unprepared investors. Find out how to avoid the mistakes that keep FX traders from succeeding.
  4. Trading

    Forex Broker Guide

    A Guide To Choosing a Forex Broker
  5. Trading

    The Forex Market: Who Trades Currency And Why

    The forex market has a lot of unique attributes that may come as a surprise for new traders.
  6. Trading

    The Pros And Cons Of Trading Forex In An Overseas Account

    The Dodd-Frank Act of 2010 could impact whether overseas accounts benefit FX investors.
  7. Trading

    How Much Leverage Is Right for You in Forex Trades

    It isn’t economics or global finance that trip up first-time forex traders. Instead, a basic lack of knowledge on how to use leverage is at the root of trading losses.
  8. Trading

    Forex Basics: Setting Up An Account

    The line between profitable forex trading and ending up in the red may be as simple as choosing the right account.
RELATED TERMS
  1. Forex Account

    The type of account a forex trader opens with a retail forex ...
  2. Foreign Exchange Market

    The market in which participants are able to buy, sell, exchange ...
  3. Forex Market

    The market in which participants are able to buy, sell, exchange ...
  4. Maximum Leverage

    The maximum size of a trading position permitted through a leveraged ...
  5. Micro Account

    A forex trade made up of contracts for 1,000 units of currency. ...
  6. Managed Forex Accounts

    A type of forex account in which a money manager trades the account ...
Hot Definitions
  1. Free Carrier - FCA

    A trade term requiring the seller to deliver goods to a named airport, terminal, or other place where the carrier operates. ...
  2. Portable Alpha

    A strategy in which portfolio managers separate alpha from beta by investing in securities that differ from the market index ...
  3. Run Rate

    1. How the financial performance of a company would look if you were to extrapolate current results out over a certain period ...
  4. Hard Fork

    A hard fork (or sometimes hardfork) is a radical change to the protocol that makes previously invalid blocks/transactions ...
  5. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
  6. Ethereum

    Ethereum is a decentralized software platform that enables SmartContracts and Distributed Applications (ĐApps) to be built ...
Trading Center