Forex is the largest trading market around the globe; however, it is unknown territory to many retail giants. Until the internet became part of everyday life, Forex was used as the home for larger financial business, multinational conglomerates and hedge funds. But now that times have changed, individual investors are eager for pertinent information on this ever-growing platform. If you’re a Forex beginner or need some up-to-date information it is best to become acquainted with some of the key parts that make this system so successful.
How is Forex Different?
Unlike the widely known stocks and share options, currency trading is not a daily, regulated exchange. Furthermore, it is not controlled by a main governing body, there are no clearing system to adhere to and there is no set-up panel to deal with in-house disputes. Members trade with one another based on currency/credit agreements. Basically, business dealt with in this way is just a metaphorical locking of two hands, a customary handshake.
Primarily, this agreement may appear confusing and haphazard to those who are used to more regulatory functions in the NYSE or CME. Nevertheless, this partnership works beautifully in practice, as both parties in Forex must compete and work together – self-regulation is main component of control. The biggest FX dealers in the United States have to become members of the NFA (National Futures Association), and by doing this they have a watertight agreement in the unfortunate event of any disputes. Thus, it is so important that any retail customer considering trading in currencies does so through a firm that is NFA certified.
CFC Tradings offer the most up-to-date Forex trading information and can give advice on the current market.
The FX market is slightly different to other markets and is likely to raise questions from some outsiders. Importantly, there is no upstick regulation in Forex trading as there would be in stocks. Moreover, there are no limits to your position, as there would be per say in futures; so, if hypothetically speaking, you could sell $150 billion worth of currency if you had the money to do so. If your biggest Chinese client, who happens to golf with the governor of the Bank of China tells you that BOC is planning to increase rates at the next seminar, you may go forward and purchase as much Yuan as you like. No-one would ever incriminate you for insider trading should you tip pay off. Insider trading does not exist in Forex; moreover, European economic, such as Norwegian employment figures, are often shared days before they are actually released.
Where is the commission in Forex trading?
Investors who trade stocks or shares often use the services of a broker, who is involved as an agent in any ongoing transaction or trading platforms like CMC Markets. Typically, the broker takes the order to an exchange and makes sure he/she follows the customer’s direct requests.
The broker is paid commission based on when the customer purchases or sells on the tradable instrument.
The Forex market is not comprised of commissions. Unlike many exchange based platforms, Forex is a principals-only centered market. Forex firms are like car dealers, not brokers. Dealers postulate on market risk by working as a counterparty to the client’s trade and purchases. Importantly, they do not charge commission, they make their money through a process known as bid-ask spread.
In Forex, the client cannot purchase on the bid or sell at the required offer like an exchange-based platform. Contrarily, once the price eliminates the cost of the spread, there are no add-on charge or commissions. Every penny gain is pure profit for the client who invested the money. Despite this, there are problems overcoming the bid/ask spread, which makes scalping a much more arduous process in Forex.
Buying and Selling in the Forex Market
Basically, you are not buying or selling anything in the Forex markets. The retail arm of the FX platform is a speculative market. The physical exchange of the currencies is not present. Trades exists simply as data entries and are netted out depending on their current market value. For dollar-dominant account, both profits and losses are calculated in dollars and are shown in the this way on the trader’s account.