As revealed by the Bank for International Settlement, a ton of money is traded day in and day out in the biggest financial market known to man which is spot forex trading. Because the amount of money traded here is so large, it surpasses the trading equities of both the US and UK. Enticing a lot of fund managers in the process, a lot of attention has been garnered by the forex market doubling the amount of money that has been traded since 2001. Forex trading is always conducted in currency pairs. In the case of currencies, they may appreciate at one point and depreciate at another time. There are plenty of traders who still cannot figure out the appreciation and depreciation trends when it comes to currency trading. The equity trade happens on an exchange but this does not. Such a trade takes place over the counter or on an OTC basis. This kind of trading can both be direct and indirect but any trade leads to a price and contract.
Today, we have an efficient currency exchange system that takes two days per transaction and this is what will be discussed in the article, spot forex trading. These banks trade on behalf of clients, for either transaction related or purely speculative purposes, and for their own book, and their size means they effectively act as the ultimate market makers, setting the bid and ask prices, which form the basis of pricing across the world. You will not find any centralized exchange in this case allowing for varying rates.
Here is where the bid and ask prices matter tremendously and the narrowest spreads are only available to the few organizations who are financially able to participate in the interbank market. Trading with better prices are reserved for a few big time organizations but the growing volumes of retail trade allows brokers to be in this category of traders as they are able to pool their transactions. Retail spot forex spreads are now as low as just two ‘pips’. To decide if you want to buy or sell particular currencies, take a look at the quotes that are available in the market.
Not only is the forex market liquid but it is an avenue of trading where non-stop trading takes place. Traders can decide to join or get out of the market with ease. If you profit from this trading avenue then you should expect to pay a capital gains tax.
Foreign exchange pricing is famous for its volatility, the pricing of currency pairs is rarely, if ever, static, with a whole host of political and financial news affecting it. The movement of the value of currencies play an important role in determining whether or not a particular currency will appreciate or depreciate. Most currency pairs move on average less than 1 per cent on a normal trading day. With a small percentage of change, why are traders fussing over the market?
What is essential here is leverage. This form of trading can lead to huge profits even with the small movements and a marginal capital to start with. Those who participate in this kind of trading are able to gain some control over the transactions that take place.