The bankers and brokers on Forex know how to handle capital. What interests them? Think of your local currency exchange office: there’s a graph like “purchase price” (or buy) and “selling price” and the distance between buying and selling is somewhere. The difference is known as the spread.
And the spread is the difference between the price of the order and the price of the sale (offer). The spread is exchange office profit. Forex is an foreign exchange market for the currency. And who is one of the currency-trading market participants? That’s right-the big banks.
There’s another important thing called swap on the Forex market. Swap occurs because of the varying overnight interest rates for each currency. Since currencies are often exchanged in pairs, you often have to borrow one currency to buy another, and it follows you have to pay interest on the loan, but you do get interest on the currency that you keep. When the difference is positive between what you pay and what you get, then you will be liable for a net swap credit. If the difference is negative, that is if you pay more interest than you receive, then the corresponding swap amount is debited to your account.
For their base calculations, most of Forex brokers use interbank overnight rates, update them daily and then skim off the top a little bit. Some Fx brokers just change their prices from time to time and others do not bother at all about the concept of swap. You’ll find several brokers pretending to be swap-free to draw Islamic clients forbidden to participate in interest-bearing deals for religious reasons.
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