How to Trade in the Forex Market
Forex market is a good place to invest in, especially with the transactions being done 24-hours a day. But before venturing to this, it is important that you have the general idea of how things and transactions go in the forex market, what is its difference from stock market and how to trade in the forex market.
Forex or the foreign exchange market is the place for the numerous currencies that the world has.
It generally revolves around global trade, wherein services and goods are being exchanged for the whole 24 hours in a day. The transactions which are carried through across the national borders call for payments that are in currencies that are non-domestic.
What Forex Market Is and How to Trade in the Forex Market
A good trader must be able to survive whatever kind of market he is trading in. Yet, one should know that in forex and others such as the stock market, there are still structural differences that will also call for a different approach in trading.
Most of the stock traders will surely notice that there is a significant difference in timeframe between equities and the forex market. Though the stock trading hours are being expanded as the years progress, it is still the forex market which can be viewed in the whole 24 hours of a day. You can expect that there will be forex trading activities in all of the world’s time zones in a whole week and at times, even during weekends. Even though many markets can transact within 24 hours a day, the volume that is not inside their sole main trading day is inconsistent and thin. Next to the time frame is the fact that there are no exchanges in the forex market. Even if there is an exchanged-based trading in forex market through future forms, the chief trading are being done over the counter through the spot market. Generally, it is in the inter-bank market wherein forex transactions take place. It goes to say that banks are trading with each other in representation of their customers. This kind of trading is a bit troublesome for the stock traders since they do not have the price data’s central location and they cannot attain the real volume information.
Since there are no exchanges being done in the forex market, how to trade in the forex market is also different. In a stock market, the order will be given to the broker who takes care of the over the counter trade with another dealer or trader or through exchange. However, in the spot forex, most of the trading carried out by a person is directly executed with the dealer or broker. It means that the broker will be on the trade’s other side. Though not the case in every transaction, this is a most typical approach. Meanwhile, because there are exchange and direct trade differences, the costs of transactions also vary between stock and forex markets. In stock markets, the brokers charge commissions for the entire buy and sell transactions. On the other hand, many of the brokers in the forex market do not charge commissions. Because these brokers are on the customer trades’ other side, they can earn profit through the spread that they make between the offer and bid prices.
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