How is the forex market different from other markets?
1. Fewer Rules: Unlike the trading of stocks, futures or options, currency trading does not take place on an exchange. As a result, investors are not held to the same type of rules and regulations. It is not controlled by any central governing body, and there are no clearing houses to make sure the party you are buying the currency from actually pays up. In some countries, there are regulatory bodies that grant licenses to compliant organizations to function as brokers or set levels of acceptable margin.
2. Low Commissions: Since currencies do not trade on a traditional exchange, fees and commissions differ widely from the commission structures found in other markets. Instead, many forex brokers make money on the difference between price you pay to buy, and the amount you receive when you sell, known as the spread. Since the dealer is receiving payment through the spread between buying and selling, it can appear as though there are no fees for entering a trade. It is wise to not assume that there is no cost to you when a dealer offers “commission-free” trades. In many cases, the dealer may build in a relatively wide bid-ask spread and it is often impossible to determine how much of the spread is going to the broker. Regardless, given factors such as liquidity, deregulation and electronic delivery, cost-savings are passed along to investors via low commissions or fees.
3. Trade Whenever You Want: Forex markets are open 24 hours a day, so if you are a night owl or early riser you can set your own trading schedule.
4. Easy to Get In and Out: You can buy and sell currencies with the click of a button, instantaneously. The market is so liquid that you will never be stuck holding onto a position that you want to get out. On the other hand, you will never be limited by supply and can essentially buy as much of a currency as you can afford.