The FOREX market is the biggest market in the world; transactions are round the clock, 24h a day, five days a week. Owing to its vast size and having no certain geographic location, it is possible to trade from any part of the world as most of it is done online. Any person with a computer and a stable internet connection can trade and become a player in the market. With banking and cash transfers between countries also possible almost instantly, the FOREX market is rife with scams. The FOREX market is slowly becoming more and more regulated, but until that is complete, it should go without saying that it is better to be safe and be aware of the scam artists.
We all know that Foreign Exchange (ForEx) market basically made of a decentralized, open, over the counter (OTC) type currency transactions in the interbank circuit. In interbank market, your orders are directly sent to the market. Under this circumstances, the trader or the “order” goes directly to multiple liquidity provider, buyers or sellers, and your order get filled at the highest bid price in open market. Even though the modern day computerized system take care of these automatically (for you), in theory at least it is not different that how people traded commodities for centuries by hand signals etc.
In a decent term, a bucket shop can be called as a pseudo-broker. This so called broker will sometimes even present you with actual pricing information to trade. However, the difference between a bucket shop and a real broker is that the bucketeer will never actually send your orders to the real, live market!
The forex trading market is by far the biggest financial market in the world with over $ 4 trillion worth currency being traded every day in different forex markets across the globe. The forex market is highly volatile market but it also provides you with an opportunity to make huge profits. Banks, financial institutions, hedge funds, brokers and individuals are some of the major players in this market. Every day these institutions and individuals trade in currencies of different countries and make quick profits on them. Online forex brokers are one of the major players in the forex market.
When choosing a forex broker, one of the factors a trader looks for is low spreads. Most brokers today promise the lowest spreads. Some claim to have 2 pips on major currency pairs; others swear to have spreads as low as 0.5. The truth, however, may give away a slightly different picture.
What is Spread?
Spread is the difference between bid price and ask price for the currency traded and is how reputable brokers make money. The broker adds the spread to the price of a trade and takes it later on as a fee. Basically, you can call it commissions.
When Slippage Occurs…
First of all, a lot of brokers have slippage when executing an order. Slippage is basically a difference between the time you actually placed an order (buy/sell a currency) and the time the transaction was actually executed. During volatile market hours the exchange rate for major pair such as EUR/USD often differs from the price you wanted to place an order from the price you clicked to execute! Slippage can be as high as $0.0015, therefore the “lowest spread” becomes much higher than promised.