Forex Market, Spot Forex, Mini Forex Definitions

Forex Market

The forex market is a huge market, and new traders are getting into this market more so than ever before. With the use of the internet growing, as well as forex courses and ebooks which teach you how to trade specific forex systems coming out of the woodwork, forex is becoming a trading tool that many people are making money out of.

The estimated turnover in the forex market is 1.9 trillion dollars a day, whereas the daily turnover for the US stock market is about 10 billion. At the moment, London is the biggest forex market, although the US, European, and Asian markets are also rising players.

Will this mean that the market will in a fundamental way because of new traders individual traders coming onto the scene? It may not be that likely as the forex market has such high liquidity, and there are many participants trading, including:

• private banks
• governments through central banks
• individuals trading forex systems
• managed forex
• investment companies
• companies involved with the import and export trade

Despite many individuals participating, it is estimated that a few hundred banks around the world still make up the majority of forex trading in the world. So it comes down to the sheer size of the market and the presence of so many players.

And the purpose of these different groups playing in the forex market? It is usually to either:

1. for making money from forex trading, or
2. for hedging when there’s exposure to currency risk

Spot Forex

What does the term spot forex mean?

You’ll see the terms spot forex and margin forex, more often than other forex terms such as forex futures or forex options.

The spot forex market is the biggest forex market that is traded. When the term forex is used, it usually refers to spot forex by default. Furthermore, most forex providers provide trading on margin, hence the term margin forex. The spot market overtook the futures forex market because of higher fees usually involved with futures trading.

Most providers of spot forex charge no commission, and often no minimum trade size that will incur a fee. That is, they are commission free. The forex market makers make their money on the spread. And because of high liquidity and competition, there is usually not a huge difference in spreads between providers for the major currency pairs. If you look, you may see 1-2 pip differences between them.

A spot contract in forex means that you buy or sell a currency today, and that the settlement date is in 2 business days. Just like in stocks where you buy a stock today, and the settlement date is in 3 business days. And when trading with margin forex, you’ll need to provide 1-4% of the face value, depending on your provider.

If you exit a position intraday, there are no other fees. On the other hand, if you hold a position for longer than one trading day, that is beyond 5pm EST or New York time, then the provider will “rollover” your position forward another day.

Because the value of the position is not the same each day, you’ll either receive or pay a roller fee. You will receive the rollover fee if the currency you have bought has a higher interest rate than the one you have sold, and vice versa. Note that on the close on Wednesdays, that rollover fee will be over a 3 day period, because of the 2 additional days making up the weekend. For some providers, you’ll need at least 2-5% margin in your account to benefit from rollover payments, that is, you’ll be paying the rollover fee if under this amount of margin.

So what you’re really doing when you’re buying currency on margin, is that you won’t have to settle or deliver $50 000 in 2 business days after trading a currency pair, because the contract is “rolled over” to another contract after the close of every day’s trading. The rollover fee that you receive or pay is small and usually doesn’t impact your trading.

Below is another term you’ll often hear…

Mini Forex

What is mini forex trading?

Mini forex refers to the trade size, or face value, of a trade that you place.

One standard contract refers to a trade size of $100 000 of the base currency. One mini forex contract on the other hand, is a face value of $10 000 of the base currency. That is, one tenth of a standard contract, hence the term mini.

Most trading platforms refer to the face value that you’re trading rather than contracts.

The term mini contract has been used by various forex providers to introduce the concept of forex trading for people who don’t have a huge float to trade with.

However, just check if there are any fees for their mini contract, or for a trade size below a certain amount, called a minimum ticket fee.

Related topics:

Fid out what forex rollover fees are

Note:

All trading involves a high risk of financial loss, and the information on this site is for general information purposes only and is not financial advice in any form. See your own financial advice before taking any action.

All forms of trading involves risk of financial loss.

Note that this site may have paid advertising or commissions generated for referrals to products and services, and forex brokers made from this site.

See our disclaimer for further information.

Testimonials and trading results of products and services from some people or users of products, does not guarantee or indicate similar results from another user of that product or service.

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