Low Transaction Costs
A currency transaction typically incurs no commission or transaction fees.
For a forex trader, the spread is the only cost he or she needs to cover in
taking on a position. In addition, because of the currency market's efficiency,
there is little or no 'slippage' costs.
'Slippage' is the cost involved when traders enter the market at a
price worse than the level they wanted to get into. For example, a trader wants
to buy a share at $2.00 but by the time, the order gets executed, his gets to
buy the shares at $2.50. That fifty cents difference is his slippage cost.
Slippage cost affects large-volume traders a lot. When they buy large quantities
of a commodity, it oversupplies the market with buy orders. This applies a
pressure for the price to go up. By the time they get to buy all the quantities
they wanted, the average price they got their commodities would be higher than
the price they intended to get them for. Conversely, when they sell large
quantities of a commodity, they oversupply the market with sell orders. This
applies a pressure for the price to go down. By the time they finish selling all
their commodities, their average selling price is less than what they initially
intended to sell them for.
