Forex trading and trading other financial assets draw a lot of differences. There are features unique only for the foreign exchange market, making it different from other trading systems. To become a reputable trader, you must know these features and be able to know how they can influence a person’s ability to trade in the forex market.
One clear difference between the stock market and the Forex market is that you won’t have to choose if you want to buy or sell because naturally, you are doing both of these at the same time. Trading in the Forex market, you tend to buy one currency while you sell the other one. Trading currencies in the Forex market always come in pairs.
In the stock market, when you sell a stock, you exchange it for money. But in the Forex market, the commodity being traded in the money itself. That being said, in the Forex market, you are exchanging one kind of money into another. The money which you will be giving away is sold while the other part is the one you bought.
One thing about the stock market is that they have a centralized governing body. Exchange is the term used to refer to this body. This body is the one that regularizes all the trades in the market and also the one that is providing a prevention mechanism.
However, the Foreign Exchange market offers no such thing. The reason for this is that the width, as well as the breadth of this trading platform, is too great for an exchange to manage. But without this exchange, there are a couple of implications available. An example of this is the counterpart risks that could happen in the Forex market. Before entering a trade, you have to make sure that both parties will pay up at the end of every trade.
In Forex trading, the brokers have no commission that adds to your expenses. Brokers get money from the difference in the price of the buy and sell. This is called the spread. This is the means of the broker to earn money. There is no such thing as fixed commissions for brokers in the Forex market.
The major participants in the Foreign exchange market are the Central Banks from different countries all over the world. Without a doubt, these institutions have the capital backing. Their finances have been produced by the entire nation and they can easily dent the Forex market if they have to. Another thing about these central banks is that they can control the underlying commodity which is being traded.
Therefore, these banks have a dual role in the Forex market. They are participants and at the same time, they can influence the traded commodities. Because of these, the actions of the central bank is always being monitored by market participants.
There is no such thing as regulation in the Forex market. Because of this, there are no limits in the trading that one can do. They offer freedom on unrestricted trading.