But one of the main advantages of the FOREX market is margin. In this market, a trader's money can play with 5-times as much value of product as a futures trader's, or 50 times more than a stock trader's.
Just like futures and stock speculation, a FOREX trader has the ability to control a large amount of currency by putting up a small amount of margin. However, the margin requirements that are needed for trading futures are usually around 5% of the full value of the holding, or 50% of the total value if you are trading stocks. The margin requirements for FOREX are about 1%. For example, the margin required to trade foreign exchange is $1000 for every $100,000. This can be a very profitable way to trade, but it's important to fully understand the risks that are involved.
When you trade in futures, you have to pay exchange and brokerage fees. FOREX is commission free, a much better scenario. Currency trading occurs on a worldwide inter-bank market that lets buyers be matched with sellers in an instant. But even though you do not have to pay a commission charge to a broker to be matched up with a buyer or seller, the spread is usually larger than it is when you are trading futures. And the spread is where the brokerage makes their money.
For example, if you are trading a Japanese Yen/US Dollar pair, a FOREX trade would have about a 3 point spread (worth $30). Trading a JY futures trade would likely have a spread of only 1 point (worth $10), but you would also be charged the broker's commission on top of that. This price could be as low as $10 for self-directed online trading, or as high as $50 for full-service trading. However, this is generally all-inclusive pricing. It’s a good idea to compare both online FOREX and your specific futures commission charges to see which commission is the greater one.
This may seem complicated, and frankly, it is a bit. The FOREX market is a technical market, but if you are willing to take the time to understand its workings and apply good trading discipline, you will realize substantial profits.
