WHO IS COMPASS FX?
In 2003, the founder and president of Compass Financial, an experienced, registered futures firm, expanded into the Forex market as Compass FX, an introducing broker for various U.S. and Non-U.S. clearing firms. Our mission was to provide traders with reliable access and support to the foreign exchange market by introducing investors to registered firms trading OTC Spot Forex and exchange-traded markets.
Since then, Compass has expanded its product offering and global reach, and now provides education programs for a diverse mix of both retail and institutional students with access to numerous resources and trading tools including the most innovated and powerful trading platforms and charting packages.
WHAT IS THE FOREIGN EXCHANGE (FOREX) MARKET?
The Foreign Exchange market, also referred to as the spot “FOREX” market, is the largest financial market in the world, with a daily average turnover of approximately $1.5 trillion USD. Foreign Exchange is the simultaneous buying of one currency and selling of another. Most FOREX trading consists of trades between the U.S. dollar and six major world currencies…Australian Dollar (AUD), Great British Pound (GBP), Canadian Dollar (CAD), Japanese Yen (JPY), and Swiss Franc (CHF).
WHY HAVE I NEVER HEARD OF THE FOREX MARKET?
Many Americans have not; yet, the FOREX has been actively traded by banks and financial institutions for nearly 40 years. In 2000, the U.S. Congress passed the Commodity Futures Modernization Act which made trade the FOREX possible for the average U.S. investor.
HOW DOES THE FOREX MARKET DIFFER FROM THE STOCK MARKET?
The FOREX is one of the fastest growing markets in the world because it offers the average investor leverage* unlike most any market, up to 50:1. Since the FOREX is traded globally through a network of banks and financial institutions 24-hours a day from Sunday at 5pm (Eastern Time) through Friday at 4pm (Eastern Time), there is no central exchange. Traders and investors can trade the FOREX most anytime that it is convenient for them.
* Without proper risk management, a high degree of leverage can lead to large losses as well as gains.
WHAT MAKES THE FOREX MARKET MOVE?
World currencies are exchanged in large because of international trade. For instance, consumers of one country purchase goods of another country. Also, when large companies do business with other global companies. Global investments and monetary diversification are additional reasons that make the FOREX market move.
WHO REGULATES THE FOREX MARKET IN THE U.S.?
The Commodity Futures Trading Commission (CFTC) and National Futures Association (NFA) monitor FOREX trading in the U.S. and provide a high degree of requirements and regulation of U.S. brokers.
DOES THE US ECONOMY AFFECT THE FOREX MARKET?
Yes. The U.S. dollar is one of the most valued currencies in the world. Traders should note that the most traded currency pair in the world is the EUR/USD.
WHO ARE THE PARTICIPANTS IN THE FOREX MARKET?
The FOREX market is called an “Interbank” market due to the fact that historically it has been dominated by banks, including central banks, commercial banks, and investment banks. However, the percentage of other market participants is rapidly growing, and now includes large multinational corporations, global money managers, registered dealers, international money brokers, futures and options traders, and private speculators.
WHEN IS THE FOREX MARKET OPEN FOR TRADING?
In a 24-hour market, Forex trading begins each day in Sydney, and moves around the globe as the business day begins in each financial center, first to Tokyo, then London, and New York. Unlike any other financial market, investors can respond to currency fluctuations caused by economic, social and political events at the time they occur – day or night. Generally in the U.S., the FOREX market is available for trading from Sunday at 5:00 PM Eastern Time till Friday at 4:00 PM Eastern Time except for holidays.
WHEN IS THE BEST TIME TO TRADE THE FOREX MARKET?
In our opinion, generally when a country’s banks and equity markets (stock, commodities, bond, etc.) are open. For instance, trading the Euro may be best from 1 a.m. Eastern Time through 9a.m. Eastern Time.
WHERE IS THE CENTRAL LOCATION OF THE FOREX MARKET?
FOREX trading is not centralized on an exchange, as with the stock and futures markets. The Forex market is considered an Over the Counter (OTC) or “Interbank” market, due to the fact that transactions are conducted between two counterparts over the telephone or via an electronic network.
WHAT ARE THE MOST COMMONLY TRADED CURRENCIES IN THE FOREX MARKETS?
The most often traded or ‘liquid’ currencies are those of countries with stable governments, respected central banks, and low inflation. A large number of Foreign Exchange daily transactions involve trading the major currencies, which include the US Dollar, Japanese Yen, Euro, British Pound, Swiss Franc, Canadian Dollar and the Australian Dollar.
WHAT IS A CURRENCY PAIR?
Two currencies make up a foreign exchange rate. For instance, the US Dollar and Japanese Yen make the USD/JPY currency pair.
WHAT IS THE BASE CURRENCY AND CROSS CURRENCY?
The first currency in a currency pair is the Base Currency. It is the dominant currency of the pair. The second currency is the Cross Currency.
WHAT IS A PIP?
PIP is an acronym for Price Interest Point. It is the smallest unit of a currency. It is the farthest digit to the right of a currency pair. Suppose the EUR/USD moves from 1.1400 to 1.1401, then it moved 1 pip which is equal to 0.0001. With currency pairs related to the Japanese Yen, a pip is equal to 0.01 because there are only 2 digits after the decimal.
HOW IS VALUE OF A PIP CALCULATED…FIXED OR FLOATING?
There are fixed and floating values for a pip depending upon the currency pair. When the USD is on the right side of the pair (EUR/USD, GBP/USD, AUD/USD, and NZD/USD) the pip is value is fixed at $1.00 per 10,000 currency units. This is a fixed pip value. When the USD is on the left side (USD/CHF) or the currency pair is made of two foreign currencies (EUR/JPY), the pip value floats or changes compared to the daily exchange rate fluctuation. An approximate floating pip value of the USD/JPY per 10,000 units of the base currency is $0.85.
WHAT IS A LOT?
A standard unit of measurement for a FOREX trade. One lot in a standard account is approximately equal to $100,000 currency. Whereas, one lot in a Mini account is approximately equal to $10,000 of currency.
WHAT IS MARGIN?
The amount of cash deposit required in a clients account in order to open a position or to maintain an open position. Margin is essentially collateral for a position. If the market moves against a customer’s position, the client will be requested to deposit additional funds through a “margin call.”
WHAT IS THE MARGIN REQUIREMENT TO MAKE A TRADE?
The FOREX allows spot currency positions to be leveraged at various amounts depending on the broker – up to 50:1 leverage is common. This means that a 2% margin deposit ($200) allows you to control $10,000 of currency in a 1 Mini lot position in the FOREX market. FOREX trading is conducted on “margin” which means that a cash deposit, usually much smaller than the underlying value of the currency contract, is required in order to trade. Margin available in your trading account is based on account equity, not account balance. The equity is the most accurate measure of the value of your account, as it takes into account unrealized gains and losses.
WHAT DOES IT MEAN TO HAVE A “LONG” OR “SHORT” POSITION?
In trading, a long position is one in which a trader buys a currency at one price and aims to sell it later at a higher price. In this scenario, the trader benefits from a rising market. A short position is one in which the trader sells a currency in anticipation that it will depreciate. In this case, the trader benefits from a declining market.
WHAT IS A STOP OR STOP LOSS ORDER?
An exit order to buy or sell a currency pair only if the market reaches a specified price or exchange rate in which the value of the currency pair has declined.
WHAT IS A LIMIT ORDER?
An exit order to buy or sell a currency pair only if the market reaches a specified price or exchange rate in which the value of the currency pair has increased.
WHAT IS AN ENTRY ORDER?
An entry order to buy or sell a currency pair only if the market reaches a specified price or exchange rate some time in the future.
CAN YOU SELL A CURRENCY PAIR AS WELL AS BUY IT?
Yes. You can trade either a buy (Long) position or sell (Short) position. Furthermore, short selling in the FOREX market does not have some of the requirements as shorting in some other markets.
WHAT IS THE PROCESS IN WHICH YOU EXECUTE TRADES?
The majority of all Forex trades are made over electronic trading platforms connected to the Internet. Typically, a trader Installs and opens a trading platform on a computer. Then, the trader creates an opening transaction, which is an order to establish either a buy (Long) or sell (Short) position. As a general rule, a trade position is kept open until one of the following occurs: a sufficient profit from a position is attained; the specified stop-loss is triggered; the trader chooses to close and liquidate a position in favor of executing another position that has a better profit potential.
CAN YOU TRADE MORE THEN ONECURRENCY AT A TIME?
Yes. There are six major currency pairs: EUR/USD, GBP/USD, USD/JPY, USD/CHF, AUD/USD, and USD/CAD.
HOW OFTEN ARE TRADES MADE?
Market conditions often dictate trading activity on any given day. As well, the type of trader you are will coincide with your trading activity. Day-traders might trade as often as 10 times a day. Whereas, Swing traders might make a small amount of trades a week. Position traders might only trade 1 to 3 times a week or a month.
DISCLAIMER: Trading futures, options on futures and off-exchange Foreign Exchange market (FX, Forex) is very speculative in nature, involves considerable risk and is not suitable for all investors. Before participating in trading, you should carefully consider your investment objectives, level of experience and risk appetite. Investors should only use risk capital when trading because there is always the risk of substantial loss. Most importantly, do not invest money you cannot afford to lose. Any mention of past performance is not indicative of future results. Account access, trade executions and system response may be adversely affected by market conditions, quote delays, system performance and other factors.
Past results as represented in testimonials are not necessarily indicative of future results or success. Testimonials may not be representative of all reasonably comparable students. Trading involves significant risk of loss and may not be suitable for all investors.
RISK WARNING: Trading futures and foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade foreign exchange you should carefully consider your monetary objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your deposited funds and therefore you should not speculate with capital that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent advisor if you have any doubts. Past returns are not indicative of future results.
Compass FX and its affiliates assume no responsibility for errors, inaccuracies or omissions in these materials. They do not warrant the accuracy or completeness of the information, text, graphics, links or other items contained within these materials. Compass FX and its affiliates shall not be liable for any special, indirect, incidental, or consequential damages, including without limitation losses, lost revenues, or lost profits that may result from these materials. This is not a solicitation to buy or sell currency or futures. Compass FX is compensated for its services through commissions and/or the spread between the bid/ask prices. All replies should be sent to firstname.lastname@example.org . Replies sent to email@example.com will be received by the Compass FX corporate email system and are subject to storage and review by someone other than the recipient.
HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM.
ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS.