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. 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 >>
  3. 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 >>
  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 >>
  5. How is the value of a pip determined?

    Learn how the pip is used in the pricing of a currency pair in forex trading, and see how the foreign exchange market is ... 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

    Forex or Stock Trading: Which Works For You?

    Even though the odds favor stock trading, forex trading has several advantages to offer a particular type of investor.
  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

    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.
  4. Trading

    Getting Started In Forex

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

    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.
  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 Trading: A Beginner's Guide

    Learn about the forex market and some beginner trading strategies to get started.
  9. Trading

    How To Trade Forex Right Now

    With the expected continued world volatility in the near future, there is a lot of money to be made in the forex market. How can you make the most of it?
  10. Financial Advisor

    What Is A Pip?

    Learn how this measure of change is used in trading currencies on the forex market.
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 Spot Rate

    The current exchange rate at which a currency pair can be bought ...
  4. Forex Market

    The market in which participants are able to buy, sell, exchange ...
  5. Forex Option Trading

    A security that allows currency traders to realize gains without ...
  6. Forex Charts

    A charting package that allows a trader to view historical currency ...
Hot Definitions
  1. North American Free Trade Agreement - NAFTA

    A regulation implemented on Jan. 1, 1994, that decreased and eventually eliminated tariffs to encourage economic activity ...
  2. Benchmark

    A standard against which the performance of a security, mutual fund or investment manager can be measured.
  3. Mobile Wallet

    Mobile wallet is a virtual wallet that stores payment card information on a mobile device.
  4. Leverage

    1. The use of various financial instruments or borrowed capital, such as margin, to increase the potential return of an investment. ...
  5. Trumponomics

    Trumponomics is a term for the economic policies of President Donald Trump.
  6. Universal Health Care Coverage

    An organized healthcare system that provides healthcare benefits to all persons in a specified region. Many countries, such ...
Trading Center