The Basics of FX Currency Trading
What was until now the domain of big financial institutions, hedge secretive funds, and multinational corporations is now opening up to retail traders and individuals. FX currency trading is bringing a world of financial benefits for all kinds of investors these days. So, how is this market different from others? Unlike options and futures or stocks, trading here doesn't occur via a regulated exchange. A central body of governance controls such trading with no trading guarantees through clearance houses or arbitration panels for adjudicating disputes. Credit agreements form the basis for trading in such scenarios. Do you find this kind of arrangement completely bewildering? It is quite natural, especially if you are used to the structure scenario of regular exchanges as CME or NYSE. While Forex may seem ad hoc at the first glance, it packs numerous benefits for the traders. Its features include, * Both cooperation & competition between participants * Self regulation for effective market control * No limit to position size FX does not have any uptick rule one, associate with other exchanges. This means that if you have the capital to do it, you will be able to sell even staggering amounts of currency without problems. Do you know of any other exchange, which is going to allow this kind of trading facility? Online currency trading using Forex doesn't involve insider trading. One should remember that it is today the most fluid and liquid market throughout the world, offering a host of opportunities to the traders everywhere. Commissions on Forex Trading In a traditional scenario when you are dealing with stocks, options, and futures, generally, your broker handles the trading on your behalf. They are, in other words, your transaction agent. Naturally, you will be your agent commissions upon selling or buying of tradable instruments. You will be surprised to note that Forex trading doesn't involve any such commission structure, being principals-only market! FX firms are not brokers, but dealers who assume market risks and serve as the counterparty to investor’s trade. These people make money through the bid-ask spread. What is a Pip? Percentage in point (pip) signifies the smallest trade increment in Forex. Here the quote of the market price is to the 4th decimal point. Any changes related to this 4th decimal point signifies 1 pip and it equals one hundredth of 1%. Currency Market Buying & Selling It is interesting to note that when you are dealing with FX currency trading there is simply nothing to buy or sell on the exchange! Isn't this amazing! This is a 100% speculative market where there is never any physical currency exchange. These are nothing but simple computer entries depending upon market prices. In case of dollar-denominated accounts, calculation of losses and profits occurs and is recorded in dollars in trader account. The very existence of FX currency market is for facilitating one currency exchange to another for the benefit of multinational corporations. These corporations require Online currency trading
for a variety of reasons, including payroll, services and goods payments, acquisition, and merger activities. It constitutes 20% of the overall market volume and the rest 80% is speculation.