The Forex market is said to be one of the most popular markets for smaller traders. Here, gains are made from the tiniest price fluctuations on currency pairs. And unlike the trading of shares or assets, the foreign exchange trading doesn’t take place on a regulated exchange.
Instead, it happens between buyers and sellers from different parts of the globe, through an over-the-counter (OTC) market. And, it goes without saying that you need to use a broker to access this market.
Due to its decentralized status, choosing the right broker could mean the difference between success and failure in your Forex trading endeavor. While there exist many brokers in the market offering similar products and services, you must be able to identify the different kinds of brokers before embarking on Forex trading.
ECN brokers offer a range of major benefits, which may help them get ahead of their leading counterparts.
The high level of confidentiality and secrecy indeed has to do with the fact that the broker would only serve as a middleman.
Trading on ECNs is more like a live exchange that offers the best bid/ask rates from all currency quotes.
Traders are granted unhindered access to market prices through an ECN agent and a dedicated account.
This feature is something that Forex dealers usually can’t afford to make compromises on.
ECN agents operate on a model that lets any and all the opportunity to trade within an international liquidity pool of viable, controlled, and competent financial institutions. Additionally, due to how connected information is transmitted, transparency is yet another key benefit of an ECN broker. All ECN agents are granted access to the same market data and trade; therefore, transparency of fundamental market prices from numerous liquidity providers is guaranteed.
One of the major benefits of an ECN broker and a connected Forex trading account is trading consistency. Given the nature of Forex trading, a break is not essential, nor does it ever occur between trades. When you take advantage of an ECN broker, you can amenably trade during events and news, with it being likely to create a real flow of activity. This also creates an opportunity for any trader to benefit from Forex price volatility.OPEN AN ACCOUNT
Some frequently asked questions about Forex Trading
PIP is the abbreviation of “point in price” or percentage in point” and it is the smallest unit of price movement in the foreign exchange market. For example, when the exchange rate of EUR/USD moves to 1.1552 from 1.1550, the currency pair has risen by 2 pips (or 0.0002).
Forex scalping is a trading strategy which aims to benefit from small price movements in the market. Scalp traders will target intraday price movements and only hold positions for a small amount of time to take advantage of small market opportunities. Forex scalpers must be prepared to monitor the markets all day long.
Forex leverage is offered by brokers to enable traders to maximize their trading potential. The forex market offers higher leverage than other markets, and this attracts potential traders. Leverage allows traders to deposit small amounts and trade with high volumes. The term ultimately means borrowing money in order to increase the potential returns on a trade, but this means losses get increased too.
The difference between the ask price and bid price is known as the spread. The spread represents the cost of a transaction; the lower the spread, the lower the cost. A spread is influenced by a number of factors: the supply of the asset, the stock’s trading activity, and the total demand or interest in a particular asset.
Hedging is a technique designed to reduce the risk caused by adverse price fluctuations. Investors and traders might implement a forex hedge in order to protect their position from risk as exchange rates change. Foreign currency options are a common hedging method, and grant the trader the possibility to buy or sell at a future exchange rate.
A swap is simply an exchange of one currency for another. At a later date, the two parties who made the swap will receive their original currency back with a forward rate. The forward rate locks in a specific exchange rate and therefore acts as a kind of hedge. The swap varies significantly among different financial instruments.
A drawdown is the difference between a relative peak and a relative trough in the value of an investment. After a new high is reached, drawdowns track the percentage change between the previous high and the smallest trough. In this way, drawdowns are useful for determining the financial risk of a certain asset.