Are you looking to become a currency trader at home? If so, you probably have a few different questions. After all, while it is an excellent way to grow wealth, it varies from traditional stock trading.
Here are a few of the most common questions you’re likely to have before beginning home currency trading.
1. What Really is the Difference in Markets?
One of the major differences between forex trading is it does not take place on what is known as a regulated exchange. This means there is no actual control set out by governing bodies, nor is there a clearing house to guarantee trades or to handle disputes. This means, you basically represent yourself and if there is an issue, it may prove rather difficult to seek out a third party to look over the issue. However, this also means you are open to make more direct trades and you can expand your wealth in ways that aren’t limited to governing bodies. There simply is more free range with forex than traditional stock markets.
2. What Do You Actually Purchase on Forex?
When it comes down to it, you are essentially buying nothing. You do not receive a mass shipment of yen in the mail after the purchase. It is similar to buying gold or precious metals off of the market. You are buying a speculative product, so there is no physical exchange taking place. Basically it is a digital computer entry. You can sell off your currency and receive the money deposited into your account, but you are not buying anything physically tangible.
3. What is PIP?
Pip, short for percentage in point, is an increment trade in forex. Often times, the forex market is quoted down to a fourth decimal point. It is like saying instead of a candy bar costing $.99, it costs $.9900. This is to help with the varying values of different currencies around the world.
4. What is Currency Carry Trade?
This is where you trade for a currency that is expected to have a high interest rate set in the future. The move over to another currency without the interest rate would net a sizeable gain.
5. No Commission
When you make a trade through the stock market, you pay a commission (typically) to a broker who serves as the agent for your purchase or sale of the stock. With forex, there is no commission because it is a principals only market. The forex firm is the dealer and not the broker. The dealer assumes all market risk and as such, they do not charge commission. Instead, a forex dealer makes money through a bid-ask spread format. Due to this, forex trading can prove especially profitable as you do not pay interest off of an investment gain. Every cent of this goes into your pocket.
6. What Currencies are Traded?
This depends on the retail dealer you work with. Typically, it is broken down into four major currencies and three commodity pairs. The major currencies pairs are euro/dollar, dollar/yen, pound/dollar and dollar/franc. The other three commodities are Australian dollar/US dollar, US dollar/Canadian dollar and New Zealand dollar/US dollar.
7. What Are Common Currency Trading Words?
Some of the most common phrases used in forex include cable/sterling, which is the Great British pound. Swissie for the Swiss franc, Kiki for New Zealand dollar, Yard is a billion units. Figure is rounding a number up, and loonie is the Canadian dollar.