FOREX EDUCATION: Everything You Need To Know About Forex Trading
One of the many advantages of trading currencies is profit. The trader deals directly with a market maker so there are no commissions. The market maker usually makes profit from the spread, which is the difference between what the market maker paid for a currency and the higher price at which he was able to sell it.
There are no organized exchanges for the foreign currency spot market hence no clearing fees or other exchange fees. Because the Forex market is decentralized, there are no government fees as well. The lack of organized exchanges and its decentralization among worldwide trading centers creates a 24 hour market during the weekdays. The large size of the market provides liquidity and fast transactions.
Investing in currencies is also a good way to earn a profit because it has little correlation with stocks or bonds. You can make money regardless of a rise or fall of the currency with respect to another. If your target currency is expected to rise, buy it and then just sell it at a higher price. If your target currency is falling, sell it and buy it later at a lower price. The FX market is too vast and too interrelated for accounting frauds to occur. Likewise insider trading and bubbles are also less likely to happen.
Very little money is required when opening an account to trade currencies. In a so-called mini-account, as little as $100 is needed. Most firms also offer up to 200:1 leverage ratios in mini-accounts. This means that a trader with $100 can trade up to $20,000 worth of currencies. Leverage greatly amplifies both profits and losses.
Traders involved in the foreign exchange market make a great number of trades daily. The buying and selling of currencies while exchanging market information may be used for the following purposes:
• Need to import and export by individuals and corporation
• Profit from the short-term fluctuations in exchange rates
• Direct foreign investment
• Purchasing foreign financial securities