Forex FAQ

Frequently Asked Questions

When can I access Forex markets?

FOREX CAN BE TRADED 24-HOURS A DAY, 5.5 DAYS A WEEK.

With stocks, bonds and most other financial products that are traded on exchange, you can only make trades during the exchange’s business hours. Fortunately for Forex traders, currencies are free of this restriction and can be traded day or night—24 hours a day, 5.5 days a week. (Sunday – Friday)

What currencies can I trade?

Interactive Markets offers over 120 currency pairs, for a full list of these please see our market information sheets

How is Spot Forex quoted and why are currency pair prices displayed with 4 decimal places?

Nearly all currency pairs display their prices like this. A few, such as the Japanese yen, display two decimal places. No matter what currency pair you’re trading, the last number behind the decimal in traditional Spot Forex always represents a pip, the smallest unit price that can change for the currency pair. (Please note: for fractional pips this is not the case; with fractional pips, the last number behind the decimal represents a tenth of one pip – please see below). As you trade, you’ll track your profits (or losses) in pips. One unit of movement represents one pip. That may seem small and you may be wondering how Forex can be worthwhile if all you’re speculating on is a small fraction of a currency. Fortunately, Forex is leveraged and traded in lots.

Please note that fractional pips will be coming onto the live platform soon. However, you can experience fractional pips on the demo system now and get yourself ready for the live launch in the coming weeks.

With fractional pips, Interactive Markets can offer more competitive spreads. A spread that would have normally been rounded to two pips in a whole pip trading system will be calculated as 1.5 pips. You can continue to trade Forex and currency pair CFDs using the features and tools that you prefer to use, but you will notice a few small differences with fractional pips.

All currency pairs in the Interactive Markets platforms will display an additional digit after the pip in the Quote Board, the Dashboard, the Open Positions and Working Orders tables and chart windows.

In order windows, like a Direct Deal ticket, the fractional pip number will appear smaller than the pip number.

How should I read a quote with fractional pips?

What is the benefit of Fractional Pips?

This kind of pricing can have a significant impact on your profits/losses. If you’ve traded Forex before, you know that it is traded in lots: standard account lots are 100,000. Let’s say you bought one lot of the EUR/USD at 1.3559 and sold at 1.3579. If you were only counting whole pips, your trade would have earned you 20 pips. With fractional pips on the EUR/USD, however, you may have bought at 1.35591 and sold at 1.35794. In that case, you would have earned 20.3 pips.

EUR/USD TRADE OUTCOME

• Whole pip system: 20 pips gained trade
• Fractional pip system: 20.3 pips gained trade

Forex is traded with a degree of leverage. If the pips, lots and leverage on your EUR/USD trade worked out to be $10 per pip, then that would mean:

• Whole pip system = $200
• Fractional pip system = $203

How do I read the Spot Forex Quote?

Dealers will often list a price with two different numbers. For example, when you look up the EUR/USD in Interactive Markets Platforms, you’ll see the Forex quote is listed as:

The first rate (1.3038) is the price at which you can sell the currency pair. The second rate (1.3040) is the price at which you can buy the currency pair. The difference between the first and second rate is called the spread. This is the amount that a dealer charges for making the trade.

What is a Pip?

In a traditional Spot Forex currency pair quote such as EUR/USD 1.3038, the last number behind the decimal represents a pip; the smallest unit that a price can change for the pair. However, the same currency pair quote with fractional pips EUR/USD 1.30382, has an extra digit (2) and therefore in this case, the last number behind the decimal represents a tenth of one pip.

What is a lot?

In Forex, a lot is a standard unit of measurement. At most Forex dealers, one lot usually equals 100,000 worth of currency.

The minimum deal size is 1 lot, but to trade 1 lot of EUR/USD does not mean that you need $100,000 in your account, because major currency pairs usually have a 100:1 leverage ratio. This means you can control a position of $100,000 with a deposit of $1,000, this commonly referred to as “leverage”.

Many traders find the leverage that most Forex dealers offer very appealing. Nonetheless, you should know that trading this way can also be risky. It can produce substantial profits as easily as it can cause substantial losses.

Let’s imagine that you just closed a successful, one-lot EUR/USD trade. You earned 20 pips.

Your account in this case has its base currency set to USD. Because you’re trading the EUR/USD that means:

0.0001 X $100,000 = $10 per pip

For your 20 pip trade, you would have earned $200.

Please note; 1 pip does not always equate to $10. The value of a pip in Forex trading depends on:

• The lot size of your trade,
• How many lots you’re trading,
• The currency pair and your accounts base currency.

What is ‘Base Currency?’

Base currency is the currency to which each transaction shall be converted at the close of each position.

What base currencies can I have my account set up in?

Interactive Markets award-winning FX trading platform supports multiple currencies, so traders do not have to familiarise themselves with another base currency. Currently, this feature supports GBP, EUR, USD.

What is a Buy position?

WITH A BUY POSITION, you believe that the value of the base currency will rise compared to the quote currency. If you’re buying the EUR/USD, you believe the price of the euro will strengthen against the dollar. In other words, you believe the euro is bullish (and that the US dollar is bearish).

What is a Sell position?

WITH A SELL POSITION, you believe that the value of the base currency will fall compared to the quote currency. If you’re selling the EUR/USD, you believe the price of the euro will weaken against the dollar. In other words, you believe the euro is bearish (and that the US dollar is bullish).

What is Roll Over / Tom Next?

Rollover is an overnight swap, specifically the next business day against the following business day (also called Tomorrow Next, abbreviated to Tom-Next).

Interactive Markets roll over policy is as follows:

All Spot FX positions held at 15:00 ET will be rolled to the next value date.

If on any given week day at 15:00 ET you are holding the currency with the higher rate of interest then you will receive financing as follows. Your positions will be closed at the current rate and reinstated at a new opening rate. This rate is determined by the price the position was closed at plus a maximum of .5 ticks if you have a short position and minus a maximum of .5 ticks if you have a long position.

If you are holding the foreign currency with the lower rate of interest you will pay financing as follows. Your positions will be closed at the current rate and reinstated at the current institutional swap rate plus a minimum of .5 ticks if you have a long position and minus a minimum of .5 ticks if you have a short position.

Please note that Positions held at 15:00 ET on a Wednesday will be subject to a three day roll-over as the positions are being rolled from a Friday value date to Monday value date (three days).

General Spot Forex Terms you should know:

Ask Price

Also known as the “buy” or “offer” price, the ask price is the price at which you can buy a currency pair.

Bid Price

Also known as the “sell” price, the bid price is the price at which you can sell a currency pair.

Leverage

The ability to use a small amount of money to control a large amount.

Liquidity

The ability or ease of buying or selling an instrument (such as a currency pair), based on market volume.

Long

Buying a currency pair. Often referred to as “going long” or “taking a long position.”

Lot

Refers to the number of units of a particular currency pair that you can trade at one time. Most Forex dealers have a minimum lot size of 100,000, but some will offer smaller lot sizes.

Margin

The security deposit a forex dealer requires you to keep in your account to support your open position(s).

Major & Minor Currencies

The most popular and most heavily traded currency pairs are called “the majors.” They are EUR/CHF, EUR/JPY, EUR/USD, GBP/EUR, GBP/USD, USD/AUD, USD/CAD, USD/CHF and USD/JPY. Minor currencies, such as those from emerging countries, tend to be a higher risk to trade.

Pip

In a currency pair quote such as EUR/USD 1.3038, the last number behind the decimal represents a pip; the smallest unit that a price can change for the pair.

Short

Selling a currency pair. Often referred to as “going short” or “taking a short position.”

Spread

The spread is the difference between the bid and the ask prices, in pips. For example, if the EUR/USD has a bid price of 1.3038 and an ask price of 1.3040, the spread is 2 pips (1.3040- 1.3038 = .0002, or 2 pips).

Spot Forex Trading Example:

On Tuesday, 1 June, 2010, on my USD Base currency account, I Sell 1 lot (100,000) of USD/CHF @ 1.1695 with a value date of Thursday, 3 June, 2010.

Later that day I Buy 1 lot (100,000) of USD/CHF @ 1.1675 to close my position.

This produced an unrealised profit of CHF 200.00 on my USD base currency account.

Following the close of business on the value date of Thursday, 3 June, 2010, the conversion rate of 0.866 is fixed to convert my unrealised profit of CHF 200.00 to the USD base currency of my account on Tuesday, 8 June, 2010.

The rate of conversion is fixed after the close of business on the value date, therefore, in this instance, the unrealised P&L became realised P&L of USD 173.20 on Friday, 4 June, 2010 and therefore the actual conversion to base currency takes place 2 business days later i.e. Tuesday, 8 June, 2010. However, during this period, the profit of CHF 200 is included in your equity balance and is therefore available.