24 Hour Currency Trading
Forbes
By Colleen Mastony
ith the click of a mouse and enough caffeine, individual investors can now trade currencies 24 hours a day. The Sydney foreign exchange market gets going at 4:00 PM EST on Sunday. As markets gear up in Tokyo, the Middle East, Europe and then the U.S., an investor could literally trade around the clock, straight through the end of U.S. market activity on Friday.
With $1.5 trillion in currency exchanged 24 hours a day between dealers in every major time zone, foreign exchange is by far the largest financial market, greatly exceeding the $300 billion traded at the U.S. Treasury bond market and the $10 billion exchanged on the U.S. stock markets. The Forex market has no central fixed location. Rather, trading goes on primarily over the telephone in hundreds of locations around the world, between commercial banks, hedge funds, corporate customers and Forex brokerages.
Until recently, individuals wanting access to the Forex market had to open a brokerage account and call in for price quotes over the phone. Now real-time currency market data are available for free over the Internet. There are a number of international firms that offer online currency trading to U.S. investors, such as U.K.-based Currency Management Corp. and Geneva-based Killiney Investments.
In the last few years a couple of U.S. companies have begun to offer cash foreign-exchange-trading services over the Internet. Our pick: New York-based Money Garden Financial Group, a foreign exchange firm that focuses on individual traders and began offering online transactions in 1997. We picked Money Garden because among other things it offers the lowest commission rates we could find.
Money Garden clears trades for at least five other trader-broker firms, among them New York-based Global Exchange Network and Dallas-based Global Forex. When Global Exchange and Global Forex customers place a trade over the Internet, the order is carried out by Money Garden dealers.
Each web site handles online execution of trades for the Japanese yen, Swiss franc, British pound and euro. They offer free real-time currency quotes, charting applications and news feeds. Global Forex and Global Exchange attempt to attract customers by adding services to their own sites. While Global Forex doesn't offer much more than the Money Garden, Global Exchange clients can monitor their stock portfolios, access Zack's research reports and link to financial sites. In May Global Exchange also plans to offer a $500 training program for novice Forex traders.
The sites offer comparable spreads, minimum deposits and margin requirements. To open an account Money Garden requires a deposit of $1,000 while Global Forex and Global Exchange both require deposits of $3,000. Investors must maintain at least $500 in their accounts to continue trading with the firms, though all strongly recommend a balance of $10,000. Margin requirements are on a sliding scale, with Global Forex and Money Garden starting at 0.5% and Global Exchange starting at 1%.
Money Garden offers the lowest commission, charging only accounts under $10,000 at a rate of $10 per round turn, which is the buying and selling of a block of currency. Per round turn, Global Exchange charges $10 for accounts under $50,000, $5 for accounts under $100,000 and $3 for accounts over $100,000. Global Forex has the most expensive rates at $25 per round turn.
Perhaps the most useful component, offered by all three sites, is the free demo account that starts potential investors trading with a $10,000 paper account using real-time data. The accounts are free for a month and cost $20 to $50 a month thereafter, though all three sites are willing to extend the trial for serious investors.
It is important to practice before jumping into the Forex market. Though volatility and leverage make for a higher profit potential, even veteran investors with nerves of steel might have trouble keeping calm during the sharp upturns and downturns of the market. On a recent day the euro moved from 1.0560 at 8:30 AM to 1.0630 by 3:00 PM, a move worth roughly $700 for a $100,000 euro position, the basic unit size for trading euros. Because firms require only a 0.5% to 1% margin for small trades, an investor could use as little as $1,000 to take a $100,000 position, but with rollercoaster-like market fluctuations that $1,000 could be reduced to pennies in just a few seconds. If your account balance drops below margin requirements, the trade closes automatically.
You don't want to invest any money you can't afford to lose. "This is not for the faint of heart or the light of wallet," says Kurt Walter, director of product development at the Financials.com, an Internet company that runs a web site on currency markets and provides Forex content for web sites.
Money Garden targets experienced investors who are familiar with the risks of trading on leverage. "If you don't have experience margin trading, if you are not following the markets or if you have just started online investing in the last year, then this is not for you," cautions Mark Prossner, vice president of news and information services at Money Garden.
The currency market is unregulated, so as for any investment, those considering online currency trading should do their homework by studying the market and scrutinizing any firm they are considering doing business with.
Jay Meisler, a former foreign-exchange trader who now runs Global-View, a Forex discussion web site, explains: "There are people in the U.S. who are up all night trading. The point is that you could pick any time during the day and there is a chance to trade." For those of you who can afford the possibility of losing some money and some sleep, may the Forex be with you. |
