Forex Trading Accounts

Written by Jacey Harmon
Bookmark and Share

Forex trading is different than trading stocks and bonds. The Forex market is a true 24 hour global network. Unlike stocks, bonds, and futures--which trade on physical exchange floors--there is no physical exchange floor for currency trading. Trades occur through an electronic network or by telephone. When you buy a stock or bond you are purchasing an actual certificate. With futures you are buying a promise to deliver a specific commodity at some time in the future. In the Forex market you don't buy anything, you simply exchange one currency for another.

Forex Trading Account Basics

Since Forex trading is fundamentally different than trading other instruments, it makes sense that Forex trading accounts are different as well. One notable difference is the fact that with Forex trading you won't pay a commission. This is simply because there is no "middle-man" involved with the trade. Your trade is placed directly on the electronic network.

The only price you will have to pay to place a trade will be the spread between the "bid and ask" prices. This spread is how organizations that facilitate Forex trading make their money. In a way it is a commission, but unlike stocks and bonds it is rather minimal. Most organizations offer minimum spreads of three pips. A pip is the smallest incremental move a currency can make. In the case of major currencies like the US Dollar or Euro, a single pip would be .0001.

Leverage in the Forex market is much higher than with other markets. A trader can use leverage from 50:1 all the way up to 400:1. High leverage increases your potential for profit but also potential for loss so make sure you have a solid understanding how to properly use leverage. The Forex market is arguably the most liquid market in the world. High liquidity not only assures tight spreads but also that your trade will be executed when you need it to.


Bookmark and Share