Forex Trader Training - 2 Misunderstood Aspects Forex Trading

By: Harold Hsu

Many people who try their hand at Forex trading often have misconceptions about the currency market. In this article, I will reveal to you four of the most commonly misunderstood aspects of Forex trading, and what it means to retail traders like you and me.

Misunderstood Aspect #1: There are no commission fees in Forex trading

This is technically true because most Forex brokers don't take a cut from your winnings. Commissions are fees paid to brokers whenever anyone makes money, and it is usually a percentage of how much you win.

But while there are no such 'commissions' paid out to brokers, many people think that this means the brokers don't charge them anything at all. Actually, the brokers DO charge you a certain fee - it's just not based on a percentage of your winnings, that's all.

Instead, most Forex borkers charge a transaction fee known as a 'spread'. Essentially they charge you a small fixed amount whenever you buy a currency pair, based on the size of your trading lot. The spread usually costs you about 2-5 pips, depending on the currency pair you're looking at. If you're trading buying one standard lot of the EUR/USD currency pair for example, and the spread is 2 pips, the transaction fee is $20 (1 pip in the EUR/USD = $10).

So now you know that you're being charged every time you make a trade. How will this affect your trading strategy? Scalpers should all be aware about the exact pip spread their brokers charge because they will enter into numerous trades in each trading day... a 1 pip spread difference can save them as much as $100 every day.

Misunderstood Aspect #2: Anyone can make money at all times of the day

This is misunderstood aspect is mainly due to the fact the currency market operates 24 hours a day. When the market is open at all times, it's natural to assume that there are people making money every single minute.

However, this is quite far from the truth. Why?

As you should know by now, there is only profit potential when the market is moving. One cannot make money trading in a flat market. You'll either need an upward or downward market movement to make money.

And if you look at the trading charts, you'll notice particular periods of each trading day when volatility is relatively low - these are typically the non-U.S. and non-London market trading times when the American and European institutional traders are not active (it's after-office hours for them).

But that's not to say that no one can make any money during periods of low volatility; it's just that the period of time when the most money is made is during the U.S. and London market trading hours when volatility and liquidity is high.

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