Are you an expert retail trader? If yes, you will agree that trading in a regulated stock market can become tiring and might result in huge losses. But as any other professional, if you also want to expand your trading horizons, you might want to take look at the forex market.
Yes, that’s right! Forex market is the most liquid and fluid market around the world. This allows you to trade 24 hours a day from Sunday to Friday. This is because the market opens and closes to accommodate the different time zones across the world.
So, trading in the forex market has gained rapid momentum over the years. But if you also want to try your hand in this market, you must have some basic knowledge about the market. Now, we could have bored you with a long list of terminologies, but we will just answer the top five frequently asked questions about the forex market. So, let’s get started!
1. What is the difference between other markets and the forex market?
This is the first question any retail trader asks. To explain in brief, unlike the stock market that is regulated and governed by a central body, forex market trading doesn’t take place at a regulated stock exchange. The trading occurs based on trading agreements. It is somewhat like making a deal just on a handshake.
Now, we know that as a retail trader this might all look confusing. But let us tell you that if there is a trusted retail forex dealer, it must become a member of the National Futures Association. This gives them credibility and allows novice traders like you to trust and trade in the forex market efficiently.
Also, in the forex market, there is no insider trading. The trader can use any information related to the market to his/her benefit. All these features make the forex market different from other markets making it more accessible to traders.
2. Is there any commission on forex trading?
This is also the most frequently asked question by retail traders because, in the regular stock market, the broker gets his/her commission when s/he executes your trading orders. But you will be surprised to know that the forex market doesn’t have any commission.
The forex firms are also known as dealers instead of brokers. Also, they don’t charge any commission instead their money is made by the ask/bid price spread. Therefore, every penny you invest is utilized in making pure profits. This is also the reason why the forex market is an attractive market for several traders around the world.
If you have a huge capital to invest, every penny will give you pure profits. The only thing you need to make sure of is to consider the leverage and investment percentage to avoid making losses.
3. What does Pip mean?
So, Pip is an abbreviation of percentage in point. This is the lowest increase of trade in the forex market. The market also has a unique way of quoting the prices. The price of any currency pair is quoted till the fourth decimal.
For example, if any item in a grocery store is quoted at $1.99, the forex market will quote the price as $1.9900. And the slight change in the fourth decimal is known as a pip.
All the currencies in the forex market are taken up to the fourth decimal point. The exception to this directive is the Japanese Yen. This currency is taken up to the second decimal point only.
4. What assets are traded in the forex market?
Now, as a retail trader, you might think that what kind of assets are traded in the forex market. The simple answer is no substantial assets. Since the forex market is speculative, no actual trading transactions take place.
Most currency transactions are entries in the computer, and these entries are cashed out as needed. The main reason behind this is that the forex market is mainly used by large multinational companies, central banks who want to trade in different currencies to keep their business operations going.
These business operations contribute to only 20% of overall trading in the market. The rest 80% is transactions are done by hedge funds, fintech companies, and individuals. Therefore, the market is highly speculative.
Also, you need to know that trading in the forex market takes place in currency pairs. You sell a currency to buy another currency. Hence, you will be short of one currency and long of another currency. But you should always remember that although the transaction is just computer entries in the trader’s account, the losses and profits are very real. So, trade wisely!
5. What are the different currency pairs traded in the forex market?
From the start of this post, we have been saying that the trading in the forex market takes place in currency pairs only. Now, you might be thinking about what currency pairs are traded in the forex market. Don’t worry, we are going to answer the question now.
The currency pairs in the forex market are divided into two categories:
- Major currency pairs: These are the most fluid currency pairs, namely, USD/CHF, USD/JPY, EUR/USD, and GBP/USD.
- Commodity currency pairs: There are three commodity currency pairs, namely, AUD/USD, NZD/USD, and USD/CAD.
But some traders would trade exotic currencies such as the Thai Bhat or Czech Koruna.
These major and commodity currency pairs are then traded in different combinations that are almost 95% of the forex trading.
This post has answered the five most frequently asked questions about forex trading that will ensure that you have a basic knowledge about the forex market and trading.
You will certainly get an idea that how the forex market differs from your regular stock market. And though it seems that the forex market is highly volatile and unregulated, the market is quite concentrated and gives you a great opportunity to make pure profits.
But if you want to get more information about the forex market, don’t forget to visit ForexTraders Guide, a leading online platform that brings the latest information about the forex market.
This online platform has been created by reputed and experienced forex traders who want to make sure that novice traders get the right information about the market. You can find information about basic terminologies, forex trading strategies, forex brokers, and forex robots.
So, if you also want to take a deep dive into forex trading, make sure to check out Forex Traders Guide.
Happy Forex trading to you!