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. That's because the funds required are significantly higher than any other investment instrument. However, with the development of electronic trading networks and margin accounts, requirements have 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. (See also: Margin Trading.)

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. (See also: 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?

    Investors use leverage to significantly increase the returns that can be provided on an investment. They lever their investments ... Read Answer >>
  4. What is the difference between extensive margin and intensive margin in economics?

    Find out why it is important for traders to understand the difference between initial margin requirements and maintenance ... Read Answer >>
  5. What am I buying and selling in the forex market?

    The forex market is the largest market in the world. According to the Triennial Central Bank Survey conducted by the Bank ... Read Answer >>
  6. How does the foreign-exchange market trade 24 hours a day?

    The forex market is the largest financial market in the world, trading around $1.5 trillion each day. Trading in the forex ... Read Answer >>
Related Articles
  1. Trading

    5 Tips For Selecting A Forex Broker

    Discover the best ways to find a broker who will help you succeed in the forex market.
  2. 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.
  3. Trading

    Getting Started In Forex

    Before entering this market, you should define what you need from your broker and from your strategy.
  4. Trading

    Working In Finance: 5 Forex Careers

    The forex markets can be both exciting and lucrative. Find out what jobs exist in this space and how to get them.
  5. Trading

    Can Forex Trading Make You Rich?

    Forex trading may be profitable for hedge funds or unusually skilled currency traders, but for average retail traders, forex trading can lead to huge losses.
  6. 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.
  7. Trading

    Why It's Important To Regulate Foreign Exchange

    In an increasingly globalized economy, the significance of the foreign exchange marketplace cannot be underestimated.
  8. Trading

    Should You Trade Forex Or Stocks?

    Deciding which markets to trade can be complicated, and many factors need to be considered in order to make the best choice.
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. Maximum Leverage

    The maximum size of a trading position permitted through a leveraged ...
  4. Forex Spot Rate

    The current exchange rate at which a currency pair can be bought ...
  5. Excess Margin Deposit

    Funds deposited in a trading account beyond what is required ...
  6. Micro Account

    A forex trade made up of contracts for 1,000 units of currency. ...
Hot Definitions
  1. Fixed Cost

    A cost that does not change with an increase or decrease in the amount of goods or services produced. Fixed costs are expenses ...
  2. Blue Chip

    A blue chip is a nationally recognized, well-established, and financially sound company.
  3. Payback Period

    The length of time required to recover the cost of an investment. The payback period of a given investment or project is ...
  4. Collateral Value

    The estimated fair market value of an asset that is being used as loan collateral. Collateral value is determined by appraisal ...
  5. Fiduciary

    A fiduciary is a person who acts on behalf of another person, or persons to manage assets.
  6. Current Account

    The difference between a nation’s savings and its investment. The current account is defined as the sum of goods and services ...
Trading Center