| This is a very good question and sadly not one that | | | | position back to the broker for. If a position had an |
| enough investors think to ask. After all, when anyone | | | | ask price of 1.1920 and a bid price of 1.1923 and you |
| first enters into Forex trading there will always be a | | | | were to sell it immediately back to the broker, you |
| lot things that you don't know and your broker would | | | | would take a loss of .0003-or three pips. Those three |
| seem to be the logical source of great | | | | pips are what the broker makes from the trade |
| information-right? Even the very notion of Forex | | | | despite the fact that they technically have not |
| trades being "commission free" is not actually | | | | charged a commission. Since the typical lot size on |
| accurate and it is therefore in the broker's best | | | | the Forex is $100,000, that means a trade costs $30 |
| interest to convince any investor to trade because | | | | in the above scenario. |
| that is when the broker makes their money. | | | | So, if the broker makes money from trades then it is |
| It is true that Forex brokers do not get paid the | | | | likely they will advise you to trade often-maybe even |
| typical commissions found in securities or commodities | | | | advise setting really tight stops in order to prevent |
| transactions. Instead, these "middlers of the Forex, | | | | you from losing money while also creating more |
| make their money from a host of activities relating | | | | trades in the process. Trading too often on the |
| to a trade, including: | | | | Forex is not a great idea anyway because trends on |
| Â- Buying/Selling currencies | | | | the Forex tend to be towards long-term consistent |
| Â- Converting and holding currencies | | | | price movements. Trading on news releases and |
| Â- Interest on deposited funds | | | | increasing your number of trades puts you at greater |
| Â- Rollover fees | | | | risk of incurring loss. |
| In short, the Forex broker makes money from the | | | | Of course, just because a broker does make money |
| difference between the bid and ask price. There was | | | | from trades does not mean that they will provide |
| a time when only banks, major currency dealers, and | | | | you with bad information. Most brokers are very |
| other big players were the only ones who play in the | | | | reputable and can provide you with sound investment |
| Forex. However, brokers are often associated or | | | | advice. However, it is definitely better to understand |
| somehow linked with an investment bank that | | | | the market and perhaps start out with "mini-lots" or |
| guarantees the loans used to leverage a trade. These | | | | even paper accounts before really jumping in with |
| brokers buy a lot ($100,000) from a larger bank or | | | | both feet. You will need a sound investment |
| investment vehicle and then sell it back to you-at the | | | | strategy, patience, and a lot of backtesting in order |
| "ask" price. | | | | to be successful in Forex trading! |
| The "bid" price is the amount that you can sell that | | | | |