The forex (FX) market is where currencies from around the world are traded. A foreign exchange account is typically what is used to trade and hold foreign currencies online. Using these accounts is easier than it has ever been in the past. Typically, you will just need to open a new account, deposit the amount of money you choose in your country’s currency, and then you are free to sell and buy currency pairs as you see fit.
KEY TAKEAWAYS
- Forex accounts are used to hold and trade foreign currencies.
- It is easier than ever for individuals to participate in forex trading, due to the development of margin accounts and electronic trading.
- You can invest in forex with as little as $1,000.
- The biggest difference between trading equities and trading on forex is the amount of leverage required.
- Forex accounts can be funded by credit card, wire transfer, personal check, or bank check.
In the past, currency trading was limited to certain individuals and institutions. That's because the funds required to play were significantly higher than for any other investment instrument. However, with the development of electronic trading networks and margin accounts, requirements have changed. Although nearly 75% of forex trading is still done by large banks and financial institutions, individuals are now able to invest in forex with as little as $1,000—thanks in large part to the use of leverage. Despite these changes, making high returns on highly-leveraged currency trades can be difficult, and will require a good amount of patience and skill.
How Forex Trading Works
By using a margin account, investors essentially borrow money from their brokers. Of course, 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 degree of 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.
Learning the ins and outs of investing in a market that contains foreign currencies can be a useful skill to develop in today’s hyper-connected world.
How To Fund a Forex Account
Forex traders are usually given several options when deciding how they will deposit funds into trading accounts. Credit card deposits have by far become the easiest way. Since the development of online payment services, digital credit card payouts 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.
Investors can also transfer funds into their trading accounts from an existing bank account or send the funds through a wire transfer or online check. When choosing to perform a wire transfer, keep in mind that most banks will charge about $30 per wire, and there may be a delay of two to three days before the amount will show in the recipient’s account for the first transfer performed.
Traders are also usually able to write a personal check or a bank 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 (depending on the individual’s bank and the state) before being added to a trading account.