How is the forex market different from other markets?

1. Fewer Rules: Unlike the trading of stocks, futures or options, currency trading does not take place on an exchange. As a result, investors are not held to the same type of rules and regulations. It is not controlled by any central governing body, and there are no clearing houses to make sure the party you are buying the currency from actually pays up. In some countries, there are regulatory bodies that grant licenses to compliant organizations to function as brokers or set levels of acceptable margin.

2. Low Commissions: Since currencies do not trade on a traditional exchange, fees and commissions differ widely from the commission structures found in other markets. Instead, many forex brokers make money on the difference between price you pay to buy, and the amount you receive when you sell, known as the spread. Since the dealer is receiving payment through the spread between buying and selling, it can appear as though there are no fees for entering a trade. It is wise to not assume that there is no cost to you when a dealer offers “commission-free” trades. In many cases, the dealer may build in a relatively wide bid-ask spread and it is often impossible to determine how much of the spread is going to the broker. Regardless, given factors such as liquidity, deregulation and electronic delivery, cost-savings are passed along to investors via low commissions or fees.

3. Trade Whenever You Want: Forex markets are open 24 hours a day, so if you are a night owl or early riser you can set your own trading schedule.

4. Easy to Get In and Out: You can buy and sell currencies with the click of a button, instantaneously. The market is so liquid that you will never be stuck holding onto a position that you want to get out. On the other hand, you will never be limited by supply and can essentially buy as much of a currency as you can afford.

Making And Losing Money

Related Articles
  1. Investing

    How to Choose a Forex Broker: Everything You Need to Know

    Take your time when looking for a forex broker because a bad decision can be costly.
  2. Trading

    Forex trading: A beginner's guide

    Foreign exchange is the act of changing one country's currency into another country's currency for a variety of reasons, usually for tourism or commerce.
  3. Trading

    Forex or Stock Trading: Which Works For You?

    Even though the odds favor stock trading, forex trading has several advantages to offer a particular type of investor.
  4. Trading

    The Top 10 Forex Brokers Regulated In The UK (FXCM, GCAP)

    Overview of the regulation of forex, the Financial Conduct Authority (FCA) and the top 10 UK forex brokers that are FCA regulated.
  5. Investing

    How To Calculate The Bid-Ask Spread

    It's very important for every investor to learn how to calculate the bid-ask spread and factor this figure when making investment decisions.
  6. Trading

    Why It's Important To Regulate Foreign Exchange

    In an increasingly globalized economy, the significance of the foreign exchange marketplace cannot be underestimated.
Frequently Asked Questions
  1. What Licenses Do Financial Advisors Need to Have?

    Understand why all financial advisors are required to be licensed, and identify the specific licenses that must be obtained ...
  2. When Is Managerial Accounting Appropriate?

    Understand the difference between managerial accounting and financial accounting. Learn common scenarios in which managerial ...
  3. Do ETFs Generate Capital Gains for Shareholders?

    Learn how exchange-traded funds (ETFs) can generate taxable capital gains for shareholders due to occasional and substantial ...
  4. Why is there a negative correlation between quantity demanded and price?

    Learn what the law of demand is, the basic assumption of the law of demand and why there is a negative correlation between ...
Trading Center