Forex is the largest international foreign exchange market, where speculative transactions on the exchange of one currency for another for the purposes of obtaining profit are executed. The share of such transactions makes up to 95% in the turnover structure. The remaining 5% of turnover fall to the share of public institutions, companies, which buy or sell any goods abroad and exchange earnings, obtained in foreign currency, to national currency. Generally, deal-making process is performed in pairs (EUR/USD), etc. In the process of making currency transactions there is a selection of the most “top-selling” currency, which is called “principal” (US dollar, Japanese yen, British pound, Euro, Swiss franc, Canadian and Australian dollar).
The Forex market is often compared to a giant exchange office. Actually, there are several similar features, but there are also differences. These differences and advantages make the Forex market the best place to exchange currency.
Among the most prominent Forex market benefits are the following:
- Day-to-day activity. Trade (trading) in Forex market is available around the clock, 5 days a week: from Sunday 17.00 (New-York time) until Friday 17.00 (New-York time). Due to this the trader can choose the most convenient time, closing and opening the position at the best price.
- Efficiency and security of transactions. In the Forex market all trades are anonymous and non-cash, funds are stored on the electronic wallet, which is similar to the current bank account. Access to the trading account is performed by using the Internet, ensuring effectiveness of foreign exchange market transactions.
- Dynamism and high potential returns. Quote price due to the high variability of the exchange rate can go up to 100 points within a short period of time. At the Forex market currency rates are changed several times per minute, which opens unlimited possibilities for growth of capital. Obtaining profit in Forex, reaching the breakeven point and winning the spread back are a matter of minutes.
- Availability of leverage. The international currency market allows you to buy and sell currencies without having the full amount of the contract on the deposit. The opportunity becomes available for traders with the leverage provided by the broker. Due to the leverage, with a small deposit of $100 and the leverage of 100, you can make transactions up to the amount of $10,000.
- High level of liquidity. Forex – is the marketplace, where money is traded like the asset with absolute liquidity. Through this process we are able to find a buyer or seller for any currency and to buy or sell in virtually unlimited quantities.
- Transparency. Information about all the changes in the global currency market, for example, the release of new political or economic data or change in the currency rate, are available in real time for all traders.
A trader, operating in the Forex market, has the opportunity to earn a huge amount by investing little money. However, apart from the fact that the Forex trader earns, he pays the fee, charged for the execution of trading transactions – transactions for buying and selling currencies. The main commission in Forex is spread, i.e. the difference between the buying and selling price of currencies.
Specialists distinguish fixed and floating, standard, or for smaller accounts commissions and fees. Fixed spread – is the commission, which remains unchanged under all circumstances prevailing in the market. Floating spread – is the commission of 2 pips provided the stable situation on the market, however, it may be increased to 40 to 50 pips when the market is experiencing unforeseen changes. There are commissions that the trader pays, for example, for withdrawal of funds or opening of the transaction.
There are several ways and practical recommendations on how to avoid extra charges and fees. Commission on Forex market is usually a fractional amount, its effect is significant only in the case of the commission in case of implementing the scalping trading strategy, when within one day of trading a large number of transactions, generating minimal profits, are executed. Typically, the commission level depends on certain factors such as the forex currency pair liquidity, volume of the operations performed, market conditions.
The trader, when choosing the broker for trading on the foreign exchange market must take into account the spread value. The trader should try to avoid brokers who promise to undertake all the costs, as the earnings of the broker consists of the spread which traders pay as fees for transactions. The trader should give the preference to the broker that provides the ability to operate in the market without additional fees, using the spread as payment for the transactions performed. Before you open a trading account with a Forex broker, you are to carry out the considered analysis of all advantages and weaknesses. Make the right choice!