What is so different about the forex/currency market?
Forex is currently the largest trading market in the world, saying that it has only recently become a thing for the general ‘run-of-the-mill’ traders. Up to a few years ago when online trading became a hit and began to become a thing of the norm, the forex market was only used and was the domain of large financial institutions, worldwide corporations and various hedge funds. As times have changed, investors want to get a taste of the currency market. So, whether you are a forex beginner or you are looking for a good read about Forex, read on to find out the answers to some top currency trading questions.
Why is the Forex market different to others?
Stocks, futures, assets and options take place on what is called a regulated exchange. Currency trading does not. Regulated exchange is where the platforms are controlled by a governing body and where there is a panel to resolve disputes. With forex trading members trade on literally a handshake, something called credit agreements.
There is an amount of self-regulation within the forex market and members have to both compete and cooperate with one another, this provides a steady level of trading on certain platforms. In saying this, regular traders and dealers have to become a part of the National Futures Association which is where they bind to an agreement in the event of a dispute. Platforms like CMC Market are members of the NFA.
With Forex trading there is a number of ways that you can trade and bet. There is no rule with trading as there is with trading stocks. You can contemplate whether a currency pair will rise or even fall and bet your trade on such assumptions. Additionally there is no limit on the size of your investment. If you had one million, you could invest one million.
Is there commission fees in forex trading?
The forex market doesn’t have commissions because it doesn’t have brokers. Brokers are only used when trading stocks and shares. When a broker provides an advisable service or emits a trade for their client they are paid a commission. Forex simply have dealers who make their money through the bid-ask spread.
With forex trading apart from these initial fees, the profit made is for the investor alone to keep.
What exactly are you selling and buying in the currency market?
In actual fact with forex trading you are neither buying or selling. There is no physical exchange of currencies and you don’t own anything, hence the fact it is known as tax free trading. As the market is traded in currency pairs, it is simply the matter that the trader decides to go short on one currency and long on the other.
What are the different currencies?
There are some dealers who deal with diverse currencies like Czech koruna for example but there are a few main currencies to take note of when trading. The following pairs account for over 95% of all trades in the forex market. These are the currency major:
USD/JPY (dollar/Japanese yen)
GBP/USD (British pound/dollar)
USD/CHF (dollar/Swiss franc)
The following are the commodity pairs:
AUD/USD (Australian dollar/dollar)
USD/CAD (dollar/Canadian dollar)
NZD/USD (New Zealand dollar/dollar)
What are some of the terms used in Forex Trading?
Cable, sterling, pound – different names for the GBP
Greenback, buck – names used for the U.S. dollar
Swissie – another name used for the Swiss franc
Aussie – another name used for the Australian dollar
Kiwi – another name used for the New Zealand dollar
Loonie, the little dollar – various names used for the Canadian dollar
Figure – A forex term meaning a round number like 1.2000
Yard – a billion units, for example “I sold a couple of yards of sterling.”
Is Forex Trading for me?
If you are thinking about taking up Forex trading then have a look at platforms that offer a demo trading account so you can get the hang of things before you invest in any money. There is plenty of courses and training material to look into as well if you think you might be interested in Forex Trading.