Tips on Choosing the Right Forex Broker
0 views
Skip to first unread message
Isabella Fox
Jan 15, 2010, 6:31:57 PM1/15/10
to Prelude to Meltdown
To trade forex you need to open an account with a forex broker. The
global nature of forex markets means that you have a wide choice of
forex brokers to choose from, right across the world.
The forex trading business runs differently to equity broking, where
trades are made through a clearing house and stock exchange and where
money is made from fees for every trade, often referred to as the
"brokerage".
The Spread
Forex brokers make their money from the difference between their
quotes of the ask price, the price their customer buys at, and the bid
price, the price their customer sell at. This is called the spread and
is measured in "points" or "PIPs", the smallest measurement for a
change in the price of a forex. For example, a one "point" or "PIP"
change in the USD is 0.0001X the USD amount. Naturally, a wider spread
results in more revenue for the broking firm.
Forex Brokers Reputation & Capital Backing
To choose the right forex broker, you should start with considering
its reputation and what trading services it offers. Doing your
research thoroughly will take time, but as with trading itself, will
save and make you money in the future. There is a wealth of
information on-line and in magazines. It is important to be sure of
the credibility of your information sources. Internet forums used by
other forex traders can be very helpful in cutting through the claims
of each company. By listening to people, forums and magazines that you
trust, you can build a list of quality firms to choose form.
It is important to be aware of unscrupulous firms as well as those
operating in countries where regulations are weak. The USA, UK, Hong
Kong & Australia are example of countries with very strong
regulatory environments.
In the USA, a forex broker is required to have a minimum of 20 million
dollars, to ensure the protection of their client's funds. To find out
the capital backing of US broking firms, go to
www.cftc.gov/marketreports/financialdataforfcms/index.htm. A large
firm with a high capitalization ,with hundreds of staff, is more
likely to be able to protect your funds in a time of crisis and
provide you with services such as 24hr phone support.
Trading Accounts
Depending on how much you have to invest and how much you intend to
invest in each trade, you will get an account with a minimum equity
requirement. This is the amount of funds you must have in the account
in order to trade. A reputable forex broker will generally recommend
that you trade 1-5% of your total capital in any trade. For example,
an account with a minimum trade of $1000 dollars could have a minimum
capital requirement of $34,000.
Leverage
Many forex traders increase their potential for profit by engaging in
leverage. This is where they borrow from their forex broker to
increase the amount they're trading. This method of trading also
exposes a trader to a higher potential loss. Brokers may offer
leverage of 100 to 1 or 250 to 1, where you can borrow up to 100 or
250 dollars for every dollar you deposit with the forex broker.
Trading Tools
Some forex brokers include valuable trading tools with some of their
accounts that would otherwise cost you to subscribe to. These include
real time data from the markets, charting tools and access to industry
leading financial media, commentary and analysis.
Avoiding Scams
Unfortunately, there will always be a minority of unethical brokers
trying to scam their customers.
A bucket shop does not always enter trades into the general market by
finding an opposing position. Instead, they take the opposing
position, relying on the fact that most forex traders lose. Not only
do they get the spread, they also keep their clients losing trade.
Because that trade exists only on their internal systems, they can
distort the market by widening in the spread. In a country with poor
regulations, brokers could simply prevent trades from getting closed,
to ensure that they don't lose.
Most trading platforms will allow you to put in "stops"; when a
currency hits a pre-determined price, your trade is sold out. This is
a helpful tool to minimize losses. However, an unscrupulous broker can
see your stop and move the price to that point, sell out your trade,
make a quick profit and then return the price to the previous
position.
To avoid this and other pitfalls, do your research, make sure your
broker is credible and get the account and trading platform that suits
your needs.
Good luck!
global nature of forex markets means that you have a wide choice of
forex brokers to choose from, right across the world.
The forex trading business runs differently to equity broking, where
trades are made through a clearing house and stock exchange and where
money is made from fees for every trade, often referred to as the
"brokerage".
The Spread
Forex brokers make their money from the difference between their
quotes of the ask price, the price their customer buys at, and the bid
price, the price their customer sell at. This is called the spread and
is measured in "points" or "PIPs", the smallest measurement for a
change in the price of a forex. For example, a one "point" or "PIP"
change in the USD is 0.0001X the USD amount. Naturally, a wider spread
results in more revenue for the broking firm.
Forex Brokers Reputation & Capital Backing
To choose the right forex broker, you should start with considering
its reputation and what trading services it offers. Doing your
research thoroughly will take time, but as with trading itself, will
save and make you money in the future. There is a wealth of
information on-line and in magazines. It is important to be sure of
the credibility of your information sources. Internet forums used by
other forex traders can be very helpful in cutting through the claims
of each company. By listening to people, forums and magazines that you
trust, you can build a list of quality firms to choose form.
It is important to be aware of unscrupulous firms as well as those
operating in countries where regulations are weak. The USA, UK, Hong
Kong & Australia are example of countries with very strong
regulatory environments.
In the USA, a forex broker is required to have a minimum of 20 million
dollars, to ensure the protection of their client's funds. To find out
the capital backing of US broking firms, go to
www.cftc.gov/marketreports/financialdataforfcms/index.htm. A large
firm with a high capitalization ,with hundreds of staff, is more
likely to be able to protect your funds in a time of crisis and
provide you with services such as 24hr phone support.
Trading Accounts
Depending on how much you have to invest and how much you intend to
invest in each trade, you will get an account with a minimum equity
requirement. This is the amount of funds you must have in the account
in order to trade. A reputable forex broker will generally recommend
that you trade 1-5% of your total capital in any trade. For example,
an account with a minimum trade of $1000 dollars could have a minimum
capital requirement of $34,000.
Leverage
Many forex traders increase their potential for profit by engaging in
leverage. This is where they borrow from their forex broker to
increase the amount they're trading. This method of trading also
exposes a trader to a higher potential loss. Brokers may offer
leverage of 100 to 1 or 250 to 1, where you can borrow up to 100 or
250 dollars for every dollar you deposit with the forex broker.
Trading Tools
Some forex brokers include valuable trading tools with some of their
accounts that would otherwise cost you to subscribe to. These include
real time data from the markets, charting tools and access to industry
leading financial media, commentary and analysis.
Avoiding Scams
Unfortunately, there will always be a minority of unethical brokers
trying to scam their customers.
A bucket shop does not always enter trades into the general market by
finding an opposing position. Instead, they take the opposing
position, relying on the fact that most forex traders lose. Not only
do they get the spread, they also keep their clients losing trade.
Because that trade exists only on their internal systems, they can
distort the market by widening in the spread. In a country with poor
regulations, brokers could simply prevent trades from getting closed,
to ensure that they don't lose.
Most trading platforms will allow you to put in "stops"; when a
currency hits a pre-determined price, your trade is sold out. This is
a helpful tool to minimize losses. However, an unscrupulous broker can
see your stop and move the price to that point, sell out your trade,
make a quick profit and then return the price to the previous
position.
To avoid this and other pitfalls, do your research, make sure your
broker is credible and get the account and trading platform that suits
your needs.
Good luck!
Long Candle Forex Trading Course Teaches Technical Analysis Techniques
- http://www.longcandles.tk/
Reply all
Reply to author
Forward
0 new messages