It is known that the foreign exchange market or the Forex market is the largest and the most liquid market in the entire world. Because of this, a lot of aspiring traders try to enter the market but are left dumbfounded after knowing that it isn’t a child’s game. There are a lot of unfamiliar terrains that each trader must surpass. Gone were the days when currency trading was only for huge financial institutions, hedge funds, and multinational corporations. Although they are still the market players, small-time Forex traders are also dominating the market magnificently.
Times took a different turn and retail traders are starting to get hungry for more information. Whether you are a novice trader or just someone who needs some refreshed course, you will find these questions and answers quite useful.
How Is the Forex Market Different From Other Markets?
Unlike futures, stocks, and options, the Forex market is taking place in an unregulated exchange. This means that transactions made here are not controlled by any government protecting bodies and sort. There are also no clearinghouses that can ensure that every trade is secured. There is also no arbitration panel that is capable of adjudicating disputes. Traders trade according to credit agreements.
What is the Forex Commission?
Most of the time, transactions made by traders on the stock market, futures, and options are intermediated by a broker. In every transaction, there is a broker that takes the order into the exchange before attempting to execute it according to the instructions of the customer. The broker will then get a commission whenever a buy or sell transaction is made. However, the Forex market itself doesn’t require commissions.
What is a Pip?
Percentage in Point (Pip) is the term used to describe the smallest increment in the Forex market. It is the price that is quoted on the fourth decimal point. For instance, if you buy soap in a drugstore and it is priced at $1.20, in the market, you will see a different quote. It will look like this – 1.2000. The change on that fourth decimal point is referred to as 1 pip or equal to the 1/100th of 1%.
What Are You Really Trading in the Forex Market?
The answer here is nothing. You are not really trading anything in the Forex market because it is just a speculative market. There is no such thing as physical exchanges where the transaction takes place. All the trades that are happening here are computer entries and are based on the market price.
The main reason for the existence of the Forex market is because it facilitates the exchange of one currency to another in a multinational corporation that needs continuous trades. Currency trading always comes in pairs.
What Are The Currencies Being Traded in The Forex Market?
There are three different kinds of currency pairs being traded in the market – the major currency pairs, minor currency pairs, and exotic currency pairs.
Major currency pairs are known to be the most traded currency pairs all over the world. They are also the most liquid and actively attract traders.
Minor currency pairs are currency pairs that don’t have US dollars. They are also referred to as crosses.
Exotic currency pairs are from developing markets in the Middle East, Africa, and Asia. They are not traded very often.