We’ve all seen those impressive figures bantered around about the Forex trading market. 5 trillion dollars in trade each day, 25 times the trading volume of the equity markets, etc. However, none of these statistics tell us why the foreign exchange market is actually rising in popularity.
In this article, we take a close look at the trends within the financial markets, to see exactly why it is that Legendafx is becoming so popular among retail investors.
Endless Liquidity
One of the best things about the prop firm industry is that no matter what currency pair you are trading – there is almost an endless amount of liquidity in the market. This is even true for the exotic pairs.
Liquidity is important because it means that your trades can be entered and exited at any time, almost regardless of market conditions. With virtually endless liquidity – phenomena such as slippage and market gapping are almost non-existent.
High Leverage Trades
Whilst the amount of leverage a trader can use per trade has fallen recently, it is still up there with some of the most highly leveraged financial instruments in the world. With Forex trading, it is not uncommon for traders to employ up to 200:1 leverage – meaning that for every $1 in the account, $200 can be used to trade on the market.
Leverage has many important implications for Legendafx, including:
The ability to magnify profits without the need for additional capital
Traders can participate in the markets without needing a huge amount of starting capital
Returns on Investment can be far higher than with traditional investments, without the additional risk
24 Hour Trading
The Legendafx market is open 24 hours per day, 6 days per week. This is because the markets open when the New Zealand markets open (Sunday night American time), and close when the US markets end on Friday. Essentially, this is a 6 day trading week – and no matter where you live or which time zone you are in, you can still actively participate in the Forex trading markets.
This is a huge draw card for many people – especially those who might have to stay up all night to participate in an overseas equity market. Alternatively, people can trade part time, whilst keeping their day job and simply trading around those set work hours.
How Does Your Forex Broker Make Money with No Commissions?
When it comes to turning a profit, the Legendafx industry is slightly different to many other financial markets. Most Forex brokers advertise themselves as not charging a commission for Forex trading, and in almost all cases – this is completely true.
But we all know that Forex brokers wouldn’t be providing us with the facility to trade Forex for absolutely no reason. There still has to be a profit for them in some respect. Indeed – even thought it might not be obvious at first, your FX broker is earning money on every trade that you place. Continue reading below to find out how.
Spreads instead of Commissions
Many traders who started out in equity trading will be well familiarized with the profit model that equity brokerage firms employ. This model is applied as follows:
The equity broker charges a fixed amount (commission) for every trade that you place
Alternatively, a more modern commission structure is that you pay a set cost per share traded – i.e. 1000 shares at $0.015 per share commission = $15.00 commission.
Traditionally, this model has worked well. However, for Forex trading, the model is more difficult to apply. This is because of the vastly varying amount of money which can be traded in an individual trade. For example – one trader might be trading a mini lot – of 10,000 currency units, whereas another trader might be using 10 standard lots for a total of 1,000,000 currency units.
To get around this problem, Forex brokers use a spread-based profiting scheme.
How The Forex Trading Spread Works
The spread is the difference between the bid and ask prices shown when a currency pair is quoted. Essentially, in Forex trading, this spread is artificially inflated by the Forex broker. This is how they make their profit. Each and every time you place a trade, the broker is able to take a small amount of “commission” out of the bid / ask spread for themselves – because the price that is really being executed on is “better” than the price that you are seeing on your screen – by a small amount.
This is why we talk about the spread of a currency pair in pips. The EUR/USD for example often has a spread of 1 to 2 pips – however on the actual spot market, the spread is only 0.1 or 0.2 pips – hence the ability for the Forex broker to profit.