Understanding the Forex Market: Key Distinctions

Trading in the Forex market is unlike trading in any other market in the world. Here are a few different ways that the Forex market is unique compared to other financial markets.

Less Regulation

One of the big differences between this market and other financial markets is the lack of regulation. There are not any specific requirements of Forex brokers and there is not a governing body that regulates all of the Forex brokers in the world. The National Futures Association regulates certain brokers that choose to become members, but you do not have to be a member of the NFA to be a Forex broker in the US.

No Commissions

In the Forex market, you can also trade without paying any commissions to brokers. Instead of charging commissions, boards brokers are compensated through the difference between the bid and ask price on each transaction.

Leverage

Another big difference between the Forex market and other financial markets is the use of extreme leverage. For example, in the stock market you can use a leverage of 2 to 1 in some cases. In the Forex market, you are going to be getting a minimum of 100 to 1 leverage and in some cases 500 to 1 leverage.