Don't get Caught Out When Picking Your Forex Trading Broker
The number of currency dealers who have entered the foreign exchange market in recent months is phenomenal. Many have tested the market and have liked the ability to make huge returns while the stock market continnues to crash. Others are attracted by an exchange which is open day and night, 5 days a week - it is a market whichnever closes. Either way, thousands of traders each day are signing up for an account with a forex trading broker. In this article we will examine factors which invetsors need to take into account when choosing a forex trading broker.
Over the past few years, there have been a number of unregulated forex trading brokers who have been closed by the regulators for defrauding account holders of their accounts. Therefore the most important aspect is to check with your forex trading broker that they are regulated by the relevant authority in the jurisdiction you are based. So, if you are in the UK, the relevant organsation is the Financial Services Authority, and in the US, the National Futures Association, and also the Securities and Exchange Commission.
A key consideration in choosing your forex trading broker is how much commission they will charge you to make a trade, or how wide the 'spread' is between the bid price and the ask price. Typically, the spread on major currency pairs will be between 2 and 4 pips. Spreads on currencies such as USD/CHF and EUR/GBP will be around three or four pips. Currency dealers with spreads wider than five pips for these currency pairs are best avoided.
Traders from stocks and options who move into forex trading will have a new concept to deal with, called leverage. Each forex trading broker will offer varying levels of leverage. Leverage can drastically increase your forex profits, however it can also magnify your losses. For example, if a broker offers 100 times leverage, this means that if you have a balance of $1000, you can trade with a notional $100,000.
Similarly, if you have a $500 balance in your forex trading account, and your forex trading broker offers leverage of 500, then you can trade with a notional amount of $250,000. The risk of using higher levels of leverage means that if your trade goes against you, then you could get wiped out very quickly.
In the forex market, currency prices move very quickly, at a fraction of a second, so it is vital that your forex trading broker can ensure that your trades are executed just as fast, and at the price that you require. Therefore, before you open a live trading account, you should trade with a demo account, and test how good the execution prices are, and whether they reflect the true prices in the forex market.
You will need a forex trading broker who will provide you with a suitable charting and analysis programme with the trading account. Some currency dealer will run MetaTrader charting with their platform, and this is a very useful addition for a foreign currency dealer. This enables the investor to take a trade directly from the charts, and ensures that the investor gets a reasonable price. - 23229
Over the past few years, there have been a number of unregulated forex trading brokers who have been closed by the regulators for defrauding account holders of their accounts. Therefore the most important aspect is to check with your forex trading broker that they are regulated by the relevant authority in the jurisdiction you are based. So, if you are in the UK, the relevant organsation is the Financial Services Authority, and in the US, the National Futures Association, and also the Securities and Exchange Commission.
A key consideration in choosing your forex trading broker is how much commission they will charge you to make a trade, or how wide the 'spread' is between the bid price and the ask price. Typically, the spread on major currency pairs will be between 2 and 4 pips. Spreads on currencies such as USD/CHF and EUR/GBP will be around three or four pips. Currency dealers with spreads wider than five pips for these currency pairs are best avoided.
Traders from stocks and options who move into forex trading will have a new concept to deal with, called leverage. Each forex trading broker will offer varying levels of leverage. Leverage can drastically increase your forex profits, however it can also magnify your losses. For example, if a broker offers 100 times leverage, this means that if you have a balance of $1000, you can trade with a notional $100,000.
Similarly, if you have a $500 balance in your forex trading account, and your forex trading broker offers leverage of 500, then you can trade with a notional amount of $250,000. The risk of using higher levels of leverage means that if your trade goes against you, then you could get wiped out very quickly.
In the forex market, currency prices move very quickly, at a fraction of a second, so it is vital that your forex trading broker can ensure that your trades are executed just as fast, and at the price that you require. Therefore, before you open a live trading account, you should trade with a demo account, and test how good the execution prices are, and whether they reflect the true prices in the forex market.
You will need a forex trading broker who will provide you with a suitable charting and analysis programme with the trading account. Some currency dealer will run MetaTrader charting with their platform, and this is a very useful addition for a foreign currency dealer. This enables the investor to take a trade directly from the charts, and ensures that the investor gets a reasonable price. - 23229
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For more information about forex trading and choosing a reputable forex trading broker go to Forex Village, a leading forex trading information web portal.
posted by X - Men @ 12:22 AM
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