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As with commodities, forex traders need to make sure what unit the broker is using for bet size of forex spread betting. Forex Spread Betting is the cheapest and easiest way for private or small investors to participate in Forex as spread betting brokers require small deposits and spreads are very low as brokers compete for business.

The foreign exchange (Forex or FX) market refers to the market for currencies. Interest in currencies has grown over the last few years and most brokers have introduced or will introduce currency bets. The FX market is the largest and most liquid financial market in the world, and includes trading between large banks, central banks, currency speculators, corporations, governments, and other institutions.

The foreign exchange market is unique because of:

 

  • Trading volumes
  • The extreme liquidity of the market
  • Large number of, and variety of, traders in the market
  • The geographical dispersion
  • Long trading hours; 24 hours a day except on weekends
  • The variety of factors that affect exchange rates
  • Low margins of profit compared with other markets of fixed income (but profits can be higher due to very large trading volumes)
  • The use of leverage


The currency market can be split into popular currencies and exotic currencies:

Popular Currencies: they boast very low deposits and spreads and include the most traded currency pairs like GBP/USD, GBP/EUR, EUR/USD, USD/JPY and many more.

Exotic Currencies: includes currencies of the developing countries and suitable only for experienced currency traders as they have much higher spreads and deposit requirements.

Unlike a stock market, where all participants have access to the same prices, the forex market is divided into levels of access. At the top is the inter-bank market, which is made up of the largest investment banking firms. Within the inter-bank market, spreads, which are the difference between the bid and ask prices, are razor sharp and usually unavailable, and not known to players outside the inner circle. As you descend the levels of access, the difference between the bid and ask prices widens (from 0-1 pip to 1-2 pips for some currencies such as the EUR). This is due to volume. If a trader can guarantee large numbers of transactions for large amounts, they can demand a smaller difference between the bid and ask price, which is referred to as a better spread.

The levels of access that make up the forex market are determined by the size of the "line" (the amount of money with which they are trading). The top-tier inter-bank market accounts for 53% of all transactions. After that there are usually smaller investment banks, followed by large multi-national corporations (which need to hedge risk and pay employees in different countries), large hedge funds, and even some of the retail forex market makers.

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