Standard Financial Instruments of Forex
August 1, 2018
Competition among Forex brokers is becoming more and more aggressive. These days, Forex brokers are fighting for customers from all circles: scalpers, swing traders, investors, etc.
But a Forex broker is not offering only currency pairs for trading. To attract as many customers as possible, brokers introduced new financial products.
A new financial product is basically a new market to trade. Traders should be aware of the differences between different financial products and the correlation degree among them.
Automated trading has become more and more popular among retail Forex traders too. Typically, scalpers (traders that focus on short to very-short-term oriented targets) are the ones that will try to automate the execution of their strategies.
Forex brokers need to adapt to the ever-changing market conditions. That is, not only to new execution technologies (different accounting types are adapted based on the execution technology needed) but to the needs of the potential customers too.
Therefore, it comes as no surprise that some brokers are offering free VPS (Virtual Private Server) hosting to their clients that want to automate the trading. But this is only a small thing to consider, as the standard financial instruments a Forex broker is involved in, changed dramatically.
A CFD is a Contract for Difference. While the idea behind trading a CFD product is similar with trading a Forex currency pair (buy when you think the price will rise and sell when the price is supposed to fall), the underlying instrument is different.
A CFD is based either on an index (Dow Jones or S&P500 in the United States, Cac40 in France, Xetra Dax in Germany, etc.,) or an individual stock. For example, one can trade the Tesla (TSLA) instrument from a Forex broker’s trading account using the CFD based on it.
Compared with Forex trading, commissions are bigger for CFD trading. The margin needed as a collateral is also bigger in the case of a CFD than in the case of a currency pair.
Any Forex broker is offering now the possibility to trade commodities from a classical Forex trading account. Gold, oil, and silver are part of the standard offering.
Sophisticated brokers go even further down the line of diversification. Products like treasuries and other bonds from around the world, other commodities (cotton, soybean, palladium, iron ore, natural gas, etc.), are only coming to complete the brokers offering.
This only shows how desperate the battle for new traders is and what is the length the brokers are traveling in that direction. In turn, brokers can become more attractive to different types of traders, as explained at the start of this article.
All in all, expect things to further move in this direction. With new technologies, access to new markets will become easier and, in the end, both the broker and the trader will have something to gain from.
The trader is satisfied with a broker that offers as many products as possible and will be delighted to trade different markets from the same trading account. The trader will gain a higher customer retention rate, which is vital to the success of a brokerage house.