If you have been a consistently successful stock trader through all these years, you might think that FX trading would be shooting fish in a barrel for you. However, FX trading is a completely different ballgame and you cannot gain much from it if you try to apply your stock trading knowledge. FX was once the monopoly of big financial institutions, secret hedge funds and big MNCs.
However, with times changing, individual investors have picked Forex trading up as a business opportunity. Here are the answers to the questions you probably always wanted to ask a qualified and reputable dealer in the FX market.
How exactly the market is different from other markets?
Unlike retail trading, FX trading does not depend on a regulated or monitored exchange. There is no governing body at national or international level watching the market and also there is no clearing house that can guarantee trades. Additionally, an arbitration panel is also non-existent, which means disputes cannot be adjudicated by any governing body. In Forex trading, members actually trade on the basis of credit agreements. Forex trading happens to be the most liquid of all markets.
The market differs from other markets in many other ways. For example, the uptick rule which you will find in stock trading is non-existent in Forex trading. This means, you can sell 100 billion USD worth of currency if you have the funds to do so.
What is Forex trading commission?
In stock trading market, investors typically use the services of professional brokers. The brokers take the orders from the investors to exchange and try their best to sell or buy according to the instructions of the investors. For providing this service and for acting as an intermediary in transactions, brokers usually take commissions after each successful transaction.
However, in FX market, you won’t find brokers. Brokers are replaced by dealers in foreign currency exchange market. So what is the main difference between a dealer and a broker? A dealer actually takes market risks into account by acting as counterparty in FX trading. They do not want commission, but they get their cuts through the spread betting process. Scalping is more difficult in Forex trading since the traders need to overcome the bid-ask spread always.
What is Percentage in Profit?
Percentage of Profit is the smallest increment in FX trading. In this represented in the form of fourth decimal point. For instance, if you bought a product from departmental store for 12.5 USD, the price would be marked in FX trading as 12.5000. Any change in the fourth decimal point is referred as one PIP or Percentage in Profit, which is equal to one hundredth of 1%. Japanese yen is the only exception to this rule. In the case of Japanese yen, the quotation is represented in the form of two decimal points.
Forex trading is so much different from stock trading that you need to forget almost everything about stock trading before plunging into the FX market.
If you want to listen to the experts and get your doubts cleared, check out CMC markets website to know more.