What About The Forex Trade?
Day by day, tons of money are traded off in what is known as spot forex trading which
according to the Bank for International Settlement is the biggest financial market that we have. That's much bigger than the daily value of equities trading in the US and UK combined. There have been plenty of developments over the past decade when it comes to the forex trade and fund managers are trying to get a piece of the action. Forex trading is always conducted in currency pairs. A trader would speculate that the value of one currency will appreciate or depreciate against another. The buying and selling action of traders greatly depends on their knowledge when it comes to the appreciation-depreciation concepts. What you won't see here is the presence of an exchange. Instead, forex trading is conducted on an over the counter or OTC basis. This kind of trading can both be direct and indirect but any trade leads to a price and contract.Accomplishing a trade when it comes to spot forex trading takes about two days but this is highly efficient and this is currently the most direct form of trading known to man. What the banks do is transact for their clients and transact for themselves and this is how they become the ultimate market makers deciding the bid and ask prices as well. There is no centralized exchange here and this is why the rates can change from market to market.
Buying and selling actions depend on the bid and ask prices that are set in this particular market but the narrowest spreads are only available to those who are financially capable of participating in the interbank market. In this case, the growing volumes of retail trade can be thanked for allowing brokers to reach this financial position wherein they pool their transactions to be able to trade at better prices. Retail spot forex spreads are now as low as just two 'pips'. Buying and selling becomes more organized in this market with the help of quotes that tell you the value of currencies.
You have something that is highly liquid in the forex market and this is where trading is done round the clock. What you get here is the chance to get in and get out of the market in an instant. When it comes to the money that is made from this kind of trade, sometimes, the amount is subjected to capital gains tax.
There is never a time when the prices of foreign exchange remained still even for a single day. In this case, a gut feel on the movement of currencies can lead to the rise or fall of a currency pair. One percent is the average amount of change that takes place for currencies. So, with such small movements, why would traders be interested in playing the FX markets?
Here is where leverage can be an advantage. Earning a profit is always possible here even if you trade small and this is because of modern trading platforms and techniques. What this leads to is the provision to traders and brokers of some kind of control over the market.
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