Forex trading allows for a greater potential of profit as it has less practical market restrictions than regular markets. While regulated as stiffly, Forex is not centralized to one location but is conducted electronically. This means that you can roll from market to market, using different Forex brokers to trade on markets from open to close. Depending on where your focus is with the exchange, you stand to benefit from changing the transaction week from 40 hours a week spread over 5 days, to 24 hours of selling a day 5 and a half days a week.
The Basics of FX
Forex (FX) stands for foreign exchange and it is the exchange market that deals in currencies rather than commodities. Currency exchange tends to be more volatile than other market exchanges because currency impacts more of daily business life than anything else. Stock investments will rise and fall over but not in an amount that will so directly impact daily operating expenses. The factors that affect foreign exchange rates include long term effects such as interest rates and economic performance reports as well as immediate effects such as sentiment towards current political news. There is also an element of forecasting involved with determining a currencies value, as investors try to predict the coming value and strength of a currency.
Forex Brokers can be based anywhere in the world because there is no centralized and physical location for the exchange to occur. Unlike places like the New York Stock Exchange where, at the end of the line of traders there has to be one real person on the floor, independent Forex brokers can trade from anywhere they can access the Internet. Also, they are not restricted to the time zone working hour limits but can switch from market to market and trade 24-hours if necessary. Investors place their account with their broker and either leave it to the broker to determine the trading, or will provide direction for the trades.
Funding an Account
Due to the faster nature of this market, transferring funds to and from a Forex account works best if it is instantaneous. While many banks and financial institutions do allow for online transfers, there is usually too significant a time delay for the funding to be effective. Also, when transferring money between accounts managed by different brokers, the need to have the deposits cleared may be instantaneous. Many investors and brokers turn to PayPal as a solution.
While no electronic financial service is infallible or without its programs, PayPal has gained a reputation for being secure and reliable. Their transactions are permitted in almost every country in the world and they have a well-established process of securing transactions and disputing charges. Accounts are verified through increasingly strict means which gives you more surety that the person on the other end is real, and not a shell company. This is very important when you consider the funds an investor may deposit and transfer to a broker. These amounts can be very large and the surety that the money is going to someone real is a surety you cannot do without.
The Electronic Trail
Another key aspect why investors and brokers prefer using PayPal is it creates a very strong electronic trail of all transactions. While many banks may use different forms of documenting deposits and transfers, but both parties utilizing the same service, all of the documentation is identical. This can make tracking and resolving any difficulties much easier. It also helps with dispute resolution as there is only one source for the tracking data rather than multiple streams.
Asking the Right Question
Before you commit to placing your account with a trader, you need to know the right questions to ask. There are all the standard disclosures they should be not only comfortable making, but offer without being asked, of past performance on the market as well as their predictive reports of future performance. When it comes to how they want the account funded and how they will handle transferring in monies after an exchange, this is where you must be very careful to read the fine print. Some traders will accept electronic deposits via PayPal, but may only pay out to brick and mortar bank accounts or other investment or financial institutions. The reason for this may lie within the financial regulations governing the country in which they are registered as a trader. Make sure that you read all the fine print on the terms and conditions closely and ask for clarification if there is any point that is not easily understood. There are less FX traders who are disreputable than you think, but regulations, especially those that govern global financial transfers are complex. If you have any doubt, don’t hesitate to schedule a consultation with an account or local trader for their opinion.