- Speculation on forex trading
- Costs of forex trading
- Advantages of Forex Trading
What is the speculation on forex trading?
The investor speculates on a favorable exchange rate between two currencies by exploiting the fluctuations between two currencies in order to achieve a profit. The two currency pairs are always traded against each other. Each currency pair thus represents an individual product and is traditionally represented as XXX/yyy. According to ISO 4217 of the International 3-letter code, YYY is the currency that expresses the price of a unit of XXX currency.
Simply put, this means that 1 euro is worth 1.3000 USD at a price of EUR/USD of 1.3000 in this example.
What are the costs of forex trading?
As with any market, there is also a money-letter spread in forex trading (the difference between the purchase price and the selling prices). In the main forex pairs like the EUR/USD, the spread is usually very low. Generally, the lower the spread, the less the trader has to pay fees for the purchase and sale of a position with his broker. The “Ask” or “offer” price is always the price at which a market maker is willing to sell and the “bid” price is the price at which a market maker is willing to buy
Advantages of Forex Trading
Another advantage of the forex market is that there is little to no insider information. Exchange rate fluctuations are usually caused by actual cash flows, as well as changes in global economic and political conditions. Significant messages are usually posted publicly. Thus, each participant of the forex market, at least theoretically receives the same news at the same time and thus has the same opportunities to benefit from the exchange fluctuations of the forex pairs.
If forex trading was previously reserved for institutional and wholesale investors, it has also been possible for private investors to participate in the exchange fluctuations in the international foreign exchange market (forex) via special forex brokers for several years. In a trade, the investor buys and sells different currency pairs.