Understanding Forex Trading Rates

Forex is the biggest financial market. It deals with buying, selling, exchanging, hedging and speculating currencies. This means that you can look to trade high volumes and high market capitalization in safe environment. Yes, the forex markets also operate in a decentralized way through off-exchange brokers but the deals are more or less safe. Forex trading rates are important to be understood and discussed before dealing in forex trades.

A broker is the central part of the deal. He also exercises some command while you are running with a trade. No dealing desk is a concept that is still catching up but more or less the dealers are required. You need these people for various forex trading rates. Let’s take a few important ones.

First, there are the rollover rates. Most of the forex market deals are done over a two day period. This means the trading is settled on the second or the third day. For keeping the position overnight, the broker debits or credits a certain amount to a trader’s account to cover for the inter-bank interest rates and the currency which is being traded. If the trader has brought a currency that is sailing at a higher interest rate than the currency pair he is trading, then money gets credited into his account.

Money is debited in the opposite case. It does not matter what kind of trading volume the trader has, rollover fee is deducted over the full position. So margin money is the key factor here. In this regard, it is also worthwhile noting that position held on a Wednesday might have a higher rollover fee as the positions are only cleared next Monday.

FXCM is presently allowing a very reasonable rollover rate. But then it has the backing of a reputed bank so it can trade through low rollovers. Let’s take an example of rollover. Suppose you are trading in EUR/GBP. This means you are looking to buy EURO and sell GBP. Now if the former is available at 3 percent interest rate and the later is at 1.5 percent interest rate, it will mean that the bought currency is at higher interest rate and hence money is deposited into a trader’s account.

Interbank FX has also done quite well with the pips it has posted for the traders. Gain capital, GCI financial and Saxo Bank are letting more or less 3 to 4 pips. Even the leverage provided is roughly 400:1. This means that while trading with them, you can look to trade big amounts for very small margin money. Most of these provide with a free demo account. Many of these top broker houses have a reasonably high pip spread used for major currencies.

Broker houses often charge few hidden fee that traders often do not understand. As we have discussed earlier, rollover rates can vary and it depends on how well you can negotiate with the brokers. Similarly margin money can vary. Further, they may charge you over the stop trades in different percentages. Always look for the leverage spread being offered.

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