Commodity Trading

Why Start Trading Currencies?

Trading currencies has been attracting more and more retail investors in recent times. Foreign exchange or forex is an OTC (over the counter) market where anybody can get involved. All you need is an internet connection, a good system or the time to learn and develop your own system, and some money to invest.

You do not necessarily need very much money. Brokers now offer mini forex trading accounts and even micro forex trading accounts which you can open with just a couple hundred dollars. However, it is better to have a little more, even if you do not put it all into the account in the beginning. Forex trading is risky and if you only have a couple hundred dollars to spare, you probably should be doing something safer with it.

But assuming that you have the funds and you have decided that you want to make money with some kind of financial trading, let’s look at why this could be a better option for you than stock or commodity trading methods.

1. No commissions and no fees.

If you have experience of the stock market you know how your profits can be eaten away by brokerage, exchange and even government fees. The free world nature of the forex market means that you do not have to pay any of these. There are no middle men. Brokers make their money through the spread, which is the difference between the bid and ask prices of a currency.

2. No fixed lot size.

In commodity futures markets, the size of a lot or contract is set by the exchange and you cannot buy or sell less than one lot. But in spot forex trading you can theoretically set your own lot size. Brokers tend to use their own standard sizes but if you know that you will want to trade small amounts you can look for a broker who offers small or fractional lots.

3. It’s a 24 hour market, five days a week.

From the beginning to the end of the global business week, the forex market never sleeps. This is great for people who need to trade outside of normal business hours. You can go work for the boss from 9 to 5, come home and start trading currencies in the evenings. Or you can start whatever time you wake in the morning, even if it is 5 a.m.

4. High leverage.

Forex brokers will offer up to 200 times your margin deposit in leverage. This means that you have the chance to make a lot of money from only a small deposited fund. You only need $50 to control $10,000 dollars in a trade. Provided you have good risk management and always remember that high leverage also means high risk, this can be a very attractive option.

5. A huge market with high liquidity.

The forex market is huge, so there is no chance of any single institution getting control of it. Even the banks, big as they are, have limited influence. Insider trading is not the issue that it can be in stock trading. And high liquidity means that you can always make the trade at the moment or the price that you want. You are never stuck unable to close a trade, and you can even set an automated trading system to close your position for you at a certain level of loss or profit.

6. Free tools and information.

Brokers are going all out to attract more retail traders and the competition between them is great for you as an investor. It is easy to find a good broker who will offer you a demo account where you can practice your trading, hone your skills and learn the basics before you start using real money. They will also give you the charts that you need to identify trends, and access to breaking forex news, all for free.

7. Low start up costs.

A computer with a high-speed Internet connection is all that is needed to begin trading currencies. If you want to use a robot for your trading you can find one for $100 to $200. A lot of information on trading currencies including advice on systems is available for free online.

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Thursday, June 18th, 2009 Introduction No Comments

How To Find A Forex Trading Broker

One essential that you must have when beginning currency exchange trading is an account with a forex trading broker. The broker is your link into the markets and will cover you to trade margins.

But how do you go about selecting a good one? Here are 5 points to take into account when you are shopping around for forex brokerage accounts.

1. Reliability

This operates on several levels. Firstly, of course, you want a broker that you can trust, who will not suddenly disappear from the internet along with all of your money. The forex market is broadly speaking unregulated, so there are a huge number of brokers and some are more trustworthy than others.

Your first step is to check that the broker is regulated. In the USA this means that you want a broker who is registered with the Commodity Futures Trading Commission (CFTC) and the National Futures Association (NFA). Look for a forex broker with a clean record in any complaints logged against them on the NFA site. Other countries have their own regulatory bodies.

Then you need to think about whether the broker’s platform is reliable. This is their software that you will connect with whenever you want to trade. If it is often offline, it is likely to cause problems for you. You could miss out on either opening or closing a trade at the best time. Check forex trading forums for feedback from users on this point, although be careful not to be swayed either way by a single individual who may have his own reasons for being strongly for or against a particular broker.

2. Services

The forex markets are open 24 hours from Sunday night to Friday afternoon EST. Check that your broker’s trading platform is available all of this time (most are) and that they offer 24 hour customer support on trading days too.

Check that they cover at least the seven major currencies USD, AUD, CAD, GBP, EUR, CHF, JPY. Again most will, but it is worth being sure.

A broker should offer you charts, technical analysis, and instant execution of your orders at the displayed price.

3. Costs

Forex brokers do not charge commission but make their money from the spread, which is the difference between the buy and sell prices on any currency pair. Spread can be anything from 1 pip or less, up to about 3 pips, depending on the broker and the pair.

The size of the slice taken by the spread can make the difference between profit and loss in your trading account in the long term so look closely at this. If you know which pairs you are likely to trade most often, the spread on those pairs will be more important to you than others. At the same time, do not be drawn in by a special offer that may not last long once you have committed your funds.

You also need to consider how much is the minimum that you can invest. Most new traders are best advised to start small, so look for a broker who will let you open an account with $250 or less.

4. Margins

Margin requirements can vary a great deal from broker to broker. A lower margin requirement means higher leverage, and higher leverage gives you greater profits or losses on the same fund size. So low margins seem great when you are doing well, but losses will be bigger if things go badly.

5. Lot size

Lot size can vary from one broker to another. Generally 100,000 units of currency is a standard lot, 10,000 is a mini lot, and 1,000 is a micro lot. Some brokers offer fractional lots which give you more power to set your own lot size. This could be a bonus or just an added complication.

There are other considerations including the interest paid on your margin account, rollover charges and other policies. However, these are the main points that you should be looking out for when choosing a forex trading broker.

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Saturday, May 23rd, 2009 Brokers No Comments