Forex for Beginners

Market Overview

The word Forex is an abbreviation for foreign exchange, which is sometimes further shortened to FX. In the summer of 1944, the Bretton Woods Agreement was established to set up rules governing commerce and finance between the world’s industrialized states. After this agreement, each participating nation was required to maintain an exchange rate for its currency within a fixed value.

In 1971, the United States under economic pressure terminated the convertibility of its currency into Gold, in essence allowing the US dollar to "float" against all global currencies. As a result, other industrialized nations soon followed suit and the international system of floating currency exchange rates came to be.

It became immediately apparent to speculators and investors that one could profit from exchange rate fluctuations if positioned correctly. As wealthy individuals and institutions began speculating in the “market”, the foreign exchange or Forex market was born.

How Trading Works

Unlike commodities or equities, currencies cannot be valued in currency, unless it is juxtaposed against another currency. For example, we can say a share of stock is worth X USD and bale of cotton worth Y USD, but we cannot value 1 USD with 1 USD. We can however state that 1 USD is equal to X Euros or Y Japanese Yen. Forex trading can only be executed within pairs of currencies, the most actively traded being: EUR/USD, USD/JPY, GBP/USD, and USD/CHF.

Every time a trade is executed on the forex market, it is the simultaneous buying of one currency and the selling of another. Unlike future or stock markets, there are no central exchanges for currency transactions. The value of any floating currency against another is determined by the bids and asks created by the global marketplace. The dynamics of valuing the bid/ask at any given time are based on both market activity and the intrinsic economic data for the two currency’s economic zones.

Since 1971, the forex market has grown into the world’s largest capital market with an average daily turnover exceeding " trillion. The market opens Monday morning in Sydney and remains open throughout the trading week until the market closes Friday evening in New York.

Trading with Leverage

The smallest increment or point that a currency pair fluctuates is called a pip, shorthand for "percentage-in-point." Although there is much volatility in the FX market, much of the daily volatility occurs in the thousandths and ten-thousandths decimal places. Under this system, large sums of capital are needed to see returns worth the time and effort of speculation. For this reason, the forex market remained largely inaccessible to the investing class and remained the realm of major institutions for many years.

The advent of the retail foreign exchange market came with the ability to trade on margin and with significantly higher leverage than other financial markets. With higher leverage, investors could swing large lines of currency and the market became not only accessible but profitable for an entire new group of speculators.

ACM offers 100:1 leverage on all dealable assets. As a Swiss firm, ACM operates in a regulatory environment that allows the firm to offer 100:1 leverage on non-major and exotic currency pairs. ACM maintains special margin requirements and reduced leverage for institutional investors trading in tickets exceeding $25,000,000.

We suggest opening a practice account before entering the FX market for the first time. Although leverage can augment profits, it can equally magnify losses. ACM offers an array of risk-management tools to our clients – we highly recommend monitoring your account activity regularly and attaching stop-loss orders to all open positions.

Overnight Positions

As there is no centralized marketplace or clearinghouse for Forex transactions, the “cost-of-carry” for holding positions overnight is determined by the FX market itself. The “cost-of-carry” or overnight rate/swap is derived from the different interest rates attached to different currencies. Based on the currency pair you hold and the orientation of your position, your account may either be credited or debited as a result. One can view the latest “rollover” rates on ACM’s main site: Spreads & Conditions → Overnight Positions.

The overnight swap occurs at 17:00 New York time, or 00:00 GMT. ACM swap rates change daily and are derived from Tier 1 bank’s interbank swap rates. As these banks are the largest participants in the Forex market, their rates serve as the benchmark for other market participants. The interbank swap rates put out by these major institutions factor in the differing interest rates of the currencies (divided by 365) and further take into account a currency pair’s liquidity, risk and volatility. ACM applies a “triple-swap” Wednesday evenings to account for the weekend rollover.

Regulation

ACM is regulated by the Swiss Financial Market Supervisory Authority and audited by Ernst and Young. ACM Dubai is further regulated by the Emirates Securities and Commodities Authority.

Banking Secrecy

ACM is a Swiss-based brokerage. As such, we have the obligation to protect a client’s account details and activity from all 3rd parties. However, banking secrecy can be suspended in the event that the federal government has evidence that the funds originated from an illegal activity. ACM complies with all international and Swiss regulations regarding due diligence and global anti-money laundering practices.