Policy Statements

SPOT FOREX

In the spot forex market trades settle in two business days. If a trader sells 10,000 Euros on Tuesday, the seller must deliver 10,000 Euros on Thursday unless the position is held open and "rolled" over to the next value date. As a service to our traders, FX Solutions automatically rolls over all open positions to the next settlement date at 17:00 Eastern Time.

Rollover or "cost-of-carry" involves the applying of a daily debit or credit to a trading account based on positions held open at 17:00 Eastern Time and on the interest differential between the two currencies in the pair(s) being traded. In the majority of cases, if a trader is "short" the currency bearing the higher interest rate then their account will be debited, if they are long then their account will be credited. For example, a short USD/JPY position will incur an interest charge as one is effectively "short" US Dollars and "long" Japanese Yen. Dollar short-term interest rates are currently at 1.00% (as of 12/8/08) while Yen rates are around 0.5%, a negative 0.5% difference. This interest differential forms the basis of the daily premium debit/credit which is applied to all open trades at 17:00 Eastern Time, Monday through Friday each week.

Leverage of 50:1 or less
This set of rates is available to accounts that select leverage of 50:1 or less. The rates offered are directly based on the interest rate differentials in the interbank cash market and closely reflect the rates available to more unleveraged, institutional-type participants in that market.

The spot foreign exchange market, at times, exhibits extreme price volatility, a condition known as a “fast market.” Fast market conditions may be caused by various factors including, but not limited to, unexpected news and economic data releases.

During periods of extreme price volatility in fast markets, currency pair prices will "gap" and bid/ask spreads can potentially widen. A price gap occurs when the price of a currency pair either jumps or plummets from its last bid/offer quote to a new quote, without ever trading at prices in between those quotes. As an example, the Euro/US Dollar currency pair may move from a bid/offer of 1.3275 - 1.3278 to 1.3220 - 1.3223, without ever trading at the prices between those quotes. In these instances both stop-loss and entry stop orders will either be executed at their requested rate, if the market has traded there, or at the next available price in the market, regardless of order size. These orders will be automatically executed and will not require dealer intervention. Entry Limit Orders and limit orders are guaranteed to be filled at their requested rate if the market has traded there or, in the event of a price gap, at the next available price if in the client’s favor. A limit order will never be executed at a price that is worse than the requested price. This policy creates uniformity and transparency of trade execution and does not discriminate based on the size of the order.

Prior to major economic news releases, FX Solutions may decide to restrict the placing of Entry Orders to, for example, a minimum of 20 pips away from the current market price instead of the normal 3-5 pips for major currency pairs. The decision to widen this spread will be based on the prevailing market liquidity and volatility. Each data release will be evaluated separately. This change will only affect Entry Orders and does not prevent the placing of Market Orders during these times. Our actions are designed to reflect current market conditions and to protect our clients from the possibility of extreme gap fills during periods of increased volatility.

The standard industry practice for banks and ECNs during fast market conditions is to immediately widen bid/ask spreads, sometimes significantly, and to potentially delay order execution. Spreads in the market tend to normalize as volatility subsides and the news is absorbed.

In a “fast market” situation therefore clients should be aware that there may be a significant delay in trade execution while rates are cross-referenced to ensure valid execution. It should also be noted that during this time, a specified requested order price does not provide a fixed-price guarantee for the client.

FX Solutions' clients who elect to trade during fast market conditions are responsible for any losses incurred as a result of such trading, just as they are during normal trading conditions. These responsibilities are the same responsibilities that FX Solutions has itself with its interbank counterparties during normal and fast market conditions. FX Solutions will not be held liable for any losses due to fast or volatile markets or incorrect information received from service vendors (i.e., quotations outside of executable price feeds and news services).

Unlike most of its competitors, FX Solutions' GTS platform calculates margin in real-time based on the currency pair traded. Margin required is affected by changes in the market rate. For non-Dollar based currency pairs the margin required will be converted into U.S. Dollars at the prevailing market price for that pair. For example, the margin required to place a trade of GBP 100,000 is not the same as the margin needed for a trade of US$100,000.

Once the equity in the client’s account falls below the used margin, (the margin required to maintain all existing positions), ALL POSITIONS ARE LIQUIDATED at the prevailing market rates.

A MARGIN CALL, WHEN TRIGGERED, WILL TAKE PRECEDENCE OVER OTHER ORDER TYPES. FX Solutions has implemented this policy in order to better protect clients during times of extreme market volatility.

Please be aware that this margin is marked-to-market in real time for the life of the trade, which is standard market protocol. Therefore, if the GBP/USD mid-price increased theoretically to 1.5710, the margin required to maintain the trade would be GBP 2,000 x 1.5710 or $3,142.00. If the price fell to 1.4500 then the required margin would decrease accordingly.

Risk Warning

Before deciding to participate in the Forex market, you should carefully consider your investment objectives, level of experience and risk appetite. Most importantly, do not invest money you cannot afford to lose.

There is considerable exposure to risk in any foreign exchange transaction. Any transaction involving currencies involves risks including, but not limited to, the potential for changing political and/or economic conditions that may substantially affect the price or liquidity of a currency. Moreover, the leveraged nature of FX trading means that any market movement will have an effect on your deposited funds proportionally equal to the leverage factor. This may work against you as well as for you. The possibility exists that you could sustain a total loss of initial margin funds and be required to deposit additional funds to maintain your position. If you fail to meet any margin call within the time prescribed, your position will be liquidated and you will be responsible for any resulting losses. Investors may lower their exposure to risk by employing risk-reducing strategies such as 'stop-loss' or 'limit' orders.

There are also risks associated with utilizing an internet-based deal execution software application including, but not limited, to the failure of hardware and software and communications difficulties.

Risk Management

The Forex Market is the largest and most liquid financial market in the world.† Since macroeconomic forces are one of the main drivers of the value of currencies in the global economy, currencies tend to have the most identifiable trend patterns.

Many traders come with false expectations of the profit potential, and lack the discipline required for trading. Short term trading is not an amateur's game and is not the way most people will achieve quick riches. Simply because Forex trading may seem exotic or less familiar then traditional markets (i.e. equities, futures, etc.), it does not mean that the rules of finance and simple logic are suspended. One cannot hope to make extraordinary gains without taking extraordinary risks, and that means suffering inconsistent trading performance that often leads to large losses. Trading currencies is not easy, and many traders with years of experience still incur periodic losses. One must realize that trading takes time to master and there are absolutely no short cuts to this process.

The most enticing aspect of trading Forex is the high degree of leverage used. Leverage seems very attractive to those who are expecting to turn small amounts of money into large amounts in a short period of time. However, leverage is a double-edged sword. Just because one lot ($10,000) of currency only requires $100 as a minimum margin deposit, it does not mean that a trader with $1,000 in his account should be easily able to trade 10 lots. One lot is $10,000 and should be treated as a $100,000 investment and not the $1000 put up as margin. Most traders conduct either technical and/or fundamental analysis and then place sensible trades unfortunately, they also tend to over leverage themselves (open a position that is too large for their portfolio), and as a consequence, are often forced to exit a position at the wrong time.

†Source: Bank for International Settlements

Utilizing Stop Loss Orders

A stop-loss is an order linked to a specific position for the purpose of closing that position and preventing the position from accruing additional losses. A stop-loss order will be executed when the displayed price on GTS touches the order price. The executed price will be the order price or in the case of a fast market the order will be executed at the next displayed price. When a stop-loss order is placed on a Buy (or Long) position it is a stop-loss order to sell and close that position. A stop-loss order placed on a Sell (or Short) position is a stop-loss order to Buy and close that position. A stop-loss order remains in effect until the position is liquidated or the client cancels the stop-loss order.

As an example, if an investor is Long (Buy) USD at 120.27, they might wish to put in a stop-loss order to Sell at 119.49, which would limit the loss on the position to the difference between the two rates (120.27-119.49) should the dollar depreciate below 119.49. A stop-loss would not be executed and the position would remain open until the market trades at the stop-loss level. Stop-loss orders are an essential tool to minimize your risk in currency trading.

Notice Regarding Third Party Trading Platform

FX Solutions serves its clients through one of the following two electronic trading platforms – the Global Trading System (GTS) and MetaTrader 4. While GTS is a trading platform proprietary to FX Solutions, MetaTrader 4 is a third-party trading platform whereby FX Solutions does not own the intellectual property, this platform may or may not run in FX Solutions datacenter, and may or may not be supported by FX Solutions' IT personnel and may or may not have an application program interface (API) integrating these third-party platforms into FX Solutions dealing systems. FX Solutions offers these third-party platforms to offer traders the ability to select a platform that has the functionality that best suits their individual needs. However, users should be aware that (1) FX Solutions does not endorse such third party platforms and (2) of the additional risks associated when using such platforms.

Since the MetaTrader 4 platform is provided by a third party, FX Solutions may not have total control over the platform. Individuals that trade on such platforms are exposed to the risks associated with the system, including, but not limited to, the communication infrastructure that connects FX Solutions to the electronic trading system. As a result of any system failure or other interruption, orders either may not be executed according to your instructions or may not be executed at all. Also as a result of any system failure or other interruption, you may not be able to place or change orders or views your trading positions or market data.

As the electronic trading system is provided by a third-party provider, to the extent not prohibited by law, FX Solutions shall not be liable for any losses or damages suffered or incurred from the use, operation, or performance of the electronic trading system. In addition, FX Solutions shall have no responsibility or liability for any direct, indirect, punitive, incidental, special or consequential damages that arise from any fault, inaccuracy, omission, delay or any other failure in the electronic trading system.