What is online trading?

Forex trading (also known as foreign exchange or FX trading), is the purchasing and selling of foreign currencies, with the objective of profiting from movements in currency prices.

Forex trades occur online, as the currencies are not physically traded. The trader and trading platform undertake to fulfil their obligations of buying or selling the amount specified. The contract ends by offsetting it against an opposite position, resulting in the profit and loss of the contractual parties.

The Forex market has no physical location and no central exchange. It operates through an electronic network of banks, corporations and individuals trading one currency for another. This lack of a physical exchange enables the Forex market to operate on a 24-hour basis, moving from one-time zone to the next.

In order to trade on the forex market, investors need to open an account with a broker and make a deposit. From there, the trader must monitor the market to buy a currency pair when they predict it will appreciate, and sell it when they predict it will depreciate.

Why trade the Forex Market

Online Trading
Trading can be done over the internet or via the telephone
Trading Any Place

Trading can be done anywhere in the world, where internet access is available. This enables you to trade from the comfort of your home, or even when on holiday or while travelling abroad. You will save on expenses for office space.

24 Hour Market

A trader may take advantage of profitable market conditions at any time. There is no waiting for the opening bell. The International Currency Markets are open continuously from Monday mornings (approximately 02:00 SAST) to Friday evening (23:00 SAST time)

Quick Timeframe

A trade in stocks is normally done over a time-frame of weeks and months. The time-frame for a trade in Forex is minutes and hours

High Profits

Due to the factor of gearing (leverage) it is possible to take huge profits on trades

High Liquidity

A trader can enter or exit the market at will in almost any market condition with minimal execution risk

Low Transaction Cost

The spread is the difference between the bid and the asking price. Spreads in the Forex market tend to be much less (or tighter) than the spreads applied to other securities such as stocks.

Uncorrelated to the stock market

A trade in the Forex Market involves selling or buying one currency against another. There is limited correlation between the foreign currency market and the stock market. A bull market or a bear market for a currency is defined in terms of the outlook for its relative value against other currencies. If the outlook is positive, we have a bull market in which a trader profits by buying that currency against other currencies. Conversely, if the outlook is pessimistic, we have a bear market for that currency and traders may profit by selling the currency against other currencies. In either case, there is always a good trading opportunity for the trader.

Interbank Market

The backbone of the Forex Market consists of a global network of dealers. They are mainly major commercial banks that communicate and trade with one another and with their clients through electronic networks and telephones. There are no organized exchanges to serve as a central location to facilitate transactions the way the New York Stock Exchange serves the Equity markets. The Forex market operates in a manner similar to the way the NASDAQ market in the United States operates; thus it is also referred to as an over-the-counter (OTC) market.

No one can corner the market

The Forex Market is so vast and has so many participants that no single entity, not even a central bank, can control the market price for an extended period of time. As the market has grown, even central bank interventions have become increasingly ineffectual and short lived as a tool for controlling the value of a particular currency.

Risks Involved in Forex Trading

As it was mentioned above, trading on the Forex Market is essentially risk-bearing. Risks in trading fall into the following categories: exchange rate risk, interest rate risk, credit risk and country risk.

Dictatorship risk

Dictatorship (sovereign) risk refers to the government’s interference in the Forex activity. Although theoretically present in all foreign exchange instruments, currency futures are, for all practical purposes, excepted from country risk, because the major currency futures markets are in the USA. Hence, traders have to realize that kind of the risk and be able to account possible administrative restrictions.

Interest rate risk

Interest rate risk refers to the profit and loss generated by fluctuations in the forward spreads, along with forward amount mismatches and maturity gaps among transactions in the foreign exchange book. The risk is pertinent to currency swaps, forward outright, futures and options.

To minimize interest rate risk, one sets limits on the total size of mismatches. A common approach is to separate the mismatches, based on their maturity dates, into up to six months and past six months.

Credit risk

Credit risk refers to the possibility that an outstanding currency position may not be repaid as agreed, due to a voluntary action by a counter party. The following forms of credit risk are known:

• Replacement risk occurs when counterparties of the failed bank find their books are subjected to the danger of not receiving refunds from the bank, where appropriate accounts became unbalanced.

• Settlement risk occurs because of the time zone on different continents. Consequently, currencies may be traded at the different price at different times during the trading day.

Therefore, payment may be made to a party that will declare insolvency (or be declared insolvent) immediately after, but prior to executing its own payments. Therefore, in assessing the credit risk, end users must consider not only the market value of their currency portfolios, but also the potential exposure of these portfolios. The potential exposure may be determined through probability analysis over the time to maturity of the outstanding position. The computerized systems currently available are very useful for implementing credit risk policies. Credit lines are easily monitored.

Exchange rate risk

Exchange rate risk is the effect of the continuous shift in the worldwide market supply and demand balance on an outstanding foreign exchange position. For the period it is outstanding, the position will be subject to all the price changes.

The most popular measures to cut losses short and ride profitable positions, so that losses should be kept within manageable limits, are the position limit and the loss limit. By using the position limitation, a maximum amount of a certain currency a trader can carry at any single time during the regular trading hours, is established. The loss limit is a measure designed to avoid unsustainable losses made by traders by means of stop-loss levels setting.

How to trade online

Placing a trade in the foreign exchange market is simple, with mechanics similar to those found in other financial markets. The objective of forex trading is to exchange one currency for another, with the expectation that the price will change. Trading forex via CFDs requires an account with a leveraged trading provider.

  1. 1

    Open an IFX account

    • Our application process is simple and secure, thanks to our online application form.
    • Once we’ve successfully completed the verification process, you’ll receive an account number via email, confirming that your account is open.
    • Shortly after that, our account managers will contact you to answer any additional questions that you may have.
  2. 2

    Fund your Account

    • Once your account is open, you’ll need to deposit funds into it to start trading. Simply click the Deposit Now tab in your Trader’s Room and you’ll find a variety of ways to deposit.
    • We do not stipulate a minimum initial deposit, so you are welcome to start with any amount you are comfortable with.
    • For more information on how you can transfer funds in and out of your account, see our help and support section conveniently located in your myiFXBrokers trading room.
  3. 3

    Start Trading

    • Now that you have an online trading account and have deposited funds, you can start trading
    • Log in, choose the instrument you wish to trade, and open a position.
    • You can access live price feeds, streaming charts and news instantly and trade 24-hours a day
    • For real time specifications on the instrument you wish to trade, select the Market Watch icon and navigate to Specification section