Posts Tagged ‘what forex dealers do’
How Do Forex Brokers Make Money?
Saturday, December 27th, 2008How Do Forex Brokers Make Money?
It is one of the most talked-about advantages of trading on the Forex the commission-free trades!
Unfortunately, while we would all like to think that Forex brokers are just out there executing trades for the fun of it, the simple truth is that everyone needs to make money- even the brokers. While they may not charge a traditional commission, brokers on the Forex still make their money whenever trades take place. Brokers actually are compensated in a number of ways, including:
Buying/Selling Currencies
Earned interest on deposited funds
Converting and holding currencies
Rollover fees
It is in the buying and selling of currencies that brokers make the majority of their money. They make this money in something known as the ’spread’, or the difference between the asking and bidding price of the currency pair. The ‘ask’ is the price a retail Forex trader would pay for a position. The ‘bid’ price refers to the amount that an investor could then sell the position at.
The smallest unit of measure in Forex trading is known as a pip and it is equal to .0001 (except for the Japanese Yen, which is .01). The difference between the ask and bid price is typically only 3 or 4 pips and this is what the broker makes when buying and selling currencies.
A broker is actually a middleman and never actually charges anyone directly. Instead, a broker purchases a position from a larger investment institution and then sells it to the retail Forex trader while pocketing the difference between the two amounts. For instance, a broker might set the ‘ask’ price at 1.250 and the ‘bid’ price at 1.246. If the investor were to sell the position immediately, then the most they could sell it for would be the ‘bid’ price of 1.246or a loss of 4 pips. Since the typical Forex transaction is conducted in $100,000 lots, that means that the broker made $40 in that currency exchange.
The spread will vary depending on the broker and the currencies being traded. Typically, the spread averages between 3-5 pips. Unfortunately, brokers are necessary tools in the Forex trading game if for no other reason than the sheer size of the transactions. There is approximately 1.8 trillion dollars exchanging hands on the Forex every day and these transactions are conducted in $100,000 ‘lots’ (there are also $10,000 mini-lots and even micro-lots). Thus, it is typical for Forex transactions to be highly leveraged with most traders only putting up $1,000 (or 1/100) in capital.
Forex brokers will tend to be partners or somehow associated with investment banks and similar institutions. These ‘backers’ actually guarantee the loans used to leverage Forex tradesand without themnone of us could trade on the currencies markets unless we were willing to risk more than the 1% demanded by most brokers.
Yes, the brokers do make money when investors trade on the Forex but they do provide a genuine service. Just be careful to avoid trading too often because although the pips are smallthey can disappear quickly especially when investors try to compensate for a loss by turning around and investing before doing their homework. Therefore, be wary of any Forex broker that advocates any form of ‘day trading’ or the likeit’s a very, very dangerous strategy to use in the most volatile and fluid market the world has ever known!
By: Kent Douglas -
Article Directory: http://www.articledashboard.com
Article by Kent Douglas, author of "The Simple Forex Solution: The Easiest Currency Trading System Anywhere." To learn how you too can succeed in Forex and Currency Trading, please visit www.SimpleForexSolution.com
Recommended forex trading software: FAP Turbo Review
Forex patterns and forecast explained
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What Forex Dealers Do
Tuesday, December 23rd, 2008What Forex Dealers Do
Chosing a Forex Dealer is a very important decision. A forex dealer should be the one who executes all the orders on your behalf.
This is very important because the wrong move could mean a loss of a lot of money. When chosing a forex dealer, make sure they have exactly what you are looking for. If you are a first time trader, technical support is a must, either via phone, email, or chat, and also a demo account. Can you practice before you invest? Another good thing to look for in a forex dealer is their financial status. You want to be sure they are financially stable, otherwise this could just mean trouble. Review the contract and make sure there are no hidden fees that you could get popped with, and make sure they are recognized by a regulatory body, such as the National Futures Association (NFA).
How much do forex traders make? If you are looking to get into the world of forex trading, you should be wondering this. Before investing money into any making money system, you should understand if the system you are about to get involved in will even be lucrative for you. The answer to this question is not going to be straight forward, but hopefully you’ll have a better understanding at the amount of money forex traders can expect to make.
There is $1-2 trillion dollars a DAY traded on the forex. What this means is there is money to be made. Every forex trader has their ups and downs, but if there is that much money being traded, it should give you an idea if the industry is a good one to invest in.
I can tell you for certain that the forex is a good place to invest and you can usually expect a return. ONLY if you know what you are doing, or at least know the basics. You can lose a lot of money if you go into it blindly.
The amount of money you make largely depends on the amount of money you have to invest. The larger the investment, the larger your profit. There are many forex traders who make thousands of dollars a day, and then there are some who make just a few hundred a day.
It is highly recommended if you are going to invest in the forex you invest in a forex trading robot. This will essentially automate your trading, and greatly reduce the amount of work you must personally do, plus it takes the guessing out of the business.
FAP Turbo is a trading robot that has been successfully tested to double your money every month. If you would like information on this, click on the above link and you will be taken to the home page.
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