If you don’t have a lot of money but you want your chance on the Forex market, the odds are likely, you’ll have to use the services of a broker. Unlike real estate agents, brokers don’t charge steep commission fees.
Brokers operate on the basis of spreads.
A spread is a broker’s bread and butter. When you enter the Forex market, you’ll want to choose a broker whose spreads are reasonable.
Why is this?
In the Forex market, almost all brokers gets his or her money usually based on the spread. In the Forex market, a spread is the difference in the bid/ask. It’s how investors make money depending on how the currencies move.
To help define how a spread works, in the world of home mortgages, a spread is the gap between what a homeowner is charged for their interest rate and what the depositors get. With the Forex market, always remember to keep the spread low.
So when you get into the Forex market and you choose a broker, find out what his spread is. Spreads are configured in what’s called pips. The word pip stands for percentage in point. To make it easy to remember, just know that when it comes to the Forex market and dealing in currencies, it’s the fourth decimal point.
If you know elementary adding and subtracting, you can understand how the percentage in point is figured. If you see something like a bid of 1.1816 and an ask of 1.1812, then you would know that the pip is four.
Knowing how brokers make their money and knowing to pick one that keeps the spread low, puts more money into your pocket and not the brokers. Just as there are many brokers to choose from in the Forex market, there are varying degrees of spreads among them.
If they don’t tell you upfront what it is, ask.
When you sign the contract to open a margin account, make sure you understand exactly how they’re spelling out their spread. Even with the broker earning his or her share through the spread, you can still have plenty left over for yourself provided you know how to use the Forex market wisely.
The Forex market can be mastered by anyone willing to make it work for them. But the opportunities won’t show up unannounced at your doorstep. You have to go after them and bring them in yourself.