The segment of Forex trading is very fascinating as it offers plenty of scope for huge profits in a short time frame. Since currency values change so frequently, there is scope for huge profits. However, if you are starting out with Forex trading you might have many questions. Here we answer some of the common questions asked by traders.
A Very Different Animal
Why this market is different? This is one of the most common questions. Unlike the stock market or one based on equities, the Forex trading does not happen through regulated exchanges. There are no central regulatory authorities, which govern the workings of this market. There is also no one to guarantee the outcome of any trading transaction. It all boils down to credit agreements. For those traders who are used to structured exchanges, this sort of vague arrangement can seem chaotic!
However, in reality, Forex trading works well because all members have to both cooperate and compete with one another to achieve success. Unlike stock markets where there are uptick rules applicable, in Forex trading there are no such rules. The position’s size also has no limitations. Since trading here happens on a 24×7 basis, with no currency gaps and huge sizes, this remains most accessible compared to all other markets.
Are there any commissions? There are no commissions in the Forex trading market. Since such a market is based only on principals, the firms involved are dealers as opposed to brokers. forex trading These dealers take responsibility for market risks since they are a party to the investor trading transaction. Through the bid-ask spreads, these dealers make profits.
What Is Meant By Pip?
The word Pip is actually an abbreviation for ‘percentage in point’. If a product was priced at a certain value in the stores in the Forex trading market it would be quoted at say X value. If there is a change in fourth decimal position then this difference is called pip. It is equivalent to 1/100th of one percent.
What is sold and bought in Forex markets? Since the Forex trading transactions are primarily speculative in nature, in reality nothing is sold or bought. There is no real exchange of currencies. The trading entries are just computer entries. All losses and profits are estimated in USD and recorded in a trader’s account accordingly.
If you would like to know how to maximize your pips from a trading transaction, the best place to learn would be in a Forex training program. Such Forex training courses teach you strategies to succeed and get maximum pips in a single day!
What are the common currency pairings traded? There are many currency pairings which you can trade with. However, the most common pairings include USD/EUR, USD/JPY, USD/CHF, GBP/USD. Then there are the commodity pairings such as USD/CAD, NZD/USD, AUD/USD etc. Other combinations like EUR/JPY, EUR/GBP as well as GBP/JPY etc. are also common. These comprise 95% of all Forex trading transactions across the world.