Forex trading has gained a great deal of prominence in the last couple of years. In the forex market, the investors interested in trading futures, options and stocks, engage in trading through a broker. Thus, a broker not only accepts the order on behalf of the trader (investor) but also executes the same as per his/her specific instructions. However, once the client (investor) has bought and sold the trading instrument, the broker charges a certain amount of commission for offering his/her service and support to the client.
Thus, the forex market is essentially a principal driven market and therefore has no commissions. The Forex firms basically function as dealers and unlike the brokers it is the dealers who bear markets risks by assisting an investor in executing his trade/transactions. Thus, dealers don’t charge any commission and instead earn money via the spread received as a result of the bidding and asking price. In the case of forex, an investor/trader cannot make any attempts for buying financial instruments on the bidding or selling price, which is possible in an exchange driven market. Also, the moment the price surpasses the spread costs, no extra commissions is payable on the same. The entire money gained by the investor, automatically becomes his/her profit.
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