Published by Ronald Gray on September 1, 2015

The Top 3 Questions You’ve Always Wanted To Ask About Forex Trading

How does Forex Market differ from all other types of markets?

For one, forex markets are not controlled by a central governing body. Unlike stocks or options, currency trading or forex trading has no regulated exchange and has no clearing office that will guarantee each trade that happens. All members trade or deal with each other based on credit agreements. So in a nutshell, forex marketing has no legal agreements and deals are always done with a handshake and is equally dependent on the marketer’s sense of business ethics.

Basically, the forex market is considered as the “Wild West” of finance. It’s basically where everything happens and it’s a lawless place where everyone can gain a profit by using dubious or legal means. Of course, the dubious ones get thrown into jail. Literally.

So wait, are you saying that forex trading or marketing is basically a gamble. More or less, yes. Why did you think only a few forex traders ever survive after years and years of experimenting and gauging the forex market?

What is a PIP?

PIP stands for “percentage in point”. It’s one of the most important things to remember when dealing with forex trading. In the forex market, prices are always quoted by the fourth decimal point. So for example, a perfume or beauty soap has a quote of 1.2000. Any change that happens in the fourth decimal is called 1 pip and it is typically equivalent to 1/100th of 1%. Sounds complicated, right? Don’t worry, you’ll get the hang of it.

Also, it is important to note that as far as world currencies are concerned, only the Japanese Yen is an exception to the PIP rule. 1 Japanese yen is now equivalent to US$ 0.01. Therefore, if you look at the USD/JY pair, the quotation only has two decimal points taken away. For example, 1/100th of yen is used, instead of 1/1000th with other major currencies in the world.

This is basic forex marketing knowledge, so better take note of this kiddos.

What exactly are you selling/buying in the forex market?

One newbie marketer asked me this question. And boy was he surprised when I gave him an honest answer.

For those who’ve been in the forex trading game for years, the forex market is purely a speculative market. Therefore, we’re not selling or buying anything. There is no actual exchange of currencies in the forex market nor do we exchange any product or service. All trades only exist as computer data and nothing more.

So if we’re not trading anything, why call it forex trading?  The primary reason why the forex market exists is to help process the exchange of one currency to another in order for multinational companies to trade currencies on a continuous basis. However, this actual trade is only 20% of the market share. The actual 80% in the trade system is still purely speculative and is placed there by multi-billion dollar hedge funds.

For more information about forex trading, please feel free to visit Forex CT, an Australian forex trading broker.