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Foreign Exchange Trading

Is Your Forex Broker Working For You?

People new to foreign exchange trading may be surprised to find that their forex broker may operate in some surprising ways. In fact, some companies offering forex trading services are not brokers in the traditional sense at all.

Traditionally a broker would work for you as a client, placing your buy and sell orders for you through their dealing desk and charging commission (for stock exchange transactions) or making their money from the spread (the difference between bid and ask prices) for forex trading. At one time orders would be placed by telephone. Now they are placed online, with you in full control of your account.

But standard forex accounts require significant investment. Typically the minimum deposit is anything from $10,000 to $50,000. Now that forex trading can be done from home, there are many new services springing up with lower deposit requirements, offering forex mini accounts. But their business model is not necessarily the same as traditional brokers, and this can have implications for you.

So these days, there are other types of companies that operate in different ways in order to provide services to the smaller investor. Most of these do not have dealing desks of their own.

Forex NDD (No Dealing Desk)

Brokers without a dealing desk communicate with external liquidity providers to provide prices and match clients’ trades. Because there is a range of liquidity providers, the real spread tends to be small but the broker may increase the spread to give themselves a reasonable profit margin.

Forex ECN (Electronic Communications Network)

ECN brokers provide a marketplace where many market users including banks, market makers and regular traders can see to have their trades filled. Trades will be entered in the name of your ECN provider for anonymity. Spread is generally small but the ECN will often charge a matching fee per trade.

Forex Market Makers

When you have an account with a market maker, your trades are not being matched by external providers but by the market maker themselves. This means that they take the opposite position and offer their prices to you, although of course these prices relate to the current price in the market. They will then offset their risk by taking an equivalent position to yours in an ECN or other environment.

Since they are not actually placing your order in the market, market makers are not brokers in the true sense of the word although most traders use the term forex broker loosely and include them. Others consider that the difference between market makers and bucket shops is not clear and prefer to avoid them.

Forex Bucket Shops

Bucket shops work a little like market makers but they do not offset their risk and may have very little connection to the real spot forex market. When you deal with a bucket shop you could be said to be betting against them. They oppose your trade and they profit by your loss. Like commercial bet takers, if you are successful they tend not to want your business and will probably close your account, returning your funds to you.

Bucket shops are illegal in some jurisdictions, and even if they are legal in your country, they are best avoided, certainly for beginners. A bucket shop is working against you, not for you, and is not a forex broker at all.

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Saturday, November 27th, 2010 Brokers, Strategy No Comments

3 Currency Trading Tips To Help You Make Money

There is a lot of money to be made in foreign exchange trading. Here are currency trading tips to help you maximize your profits.

1. Use weekly charts as well as daily charts

Checking back over the week’s price movements for your chosen currency pair will give you a better perspective on both short and long term trends in the market. It is easy to become blinkered in spot forex trading especially if your method concentrates on day trading. Weekly charts allow you to take a step back.

Sometimes the new perspective that you gain in this way will help you see what went right or wrong with your trading and why. This can help you to refine your systems to make them more profitable. However, do not make changes in a good system every time something goes wrong. There is a need for balance here.

2. Do not trade too much

It is tempting to jump into the market and open a trade whenever you think you spot an opportunity, when really you should have held back. It is often true that the fewer trades you make, the more money you will make. This seems counterintuitive because we tend to think that we need to make a lot of trades to build up big profits. But opening a trade at the wrong moment leads to losses, so in fact the opposite is often true.

You need to be comfortable with risk in order to engage in forex trading. Most traders even enjoy the risk. So it can be difficult to hold back from something that looks like a big opportunity. Remember this is investment, not gambling. You must choose your trades carefully. Taking chances in the hope of making a big killing is likely to lead to your account balance taking a hammering.

If you have a profitable forex trading system that does not often offer the opportunity to trade so it is not making you much money, do not be tempted to widen the criteria so that it lets you trade more often. This will almost certainly turn your profitable system into an unprofitable one.

Instead there are two things you can do. First you can increase the amount of each trade. This increases your risk and is probably not a good idea unless you are very sure of your system. Second you can try to find a different system that is equally profitable that you can operate alongside the first. This is the better option for most people but make sure that you test your new system thoroughly before adopting it.

3. Set realistic targets

When you are thinking about how much money you hope to make with currency trading, it is important to be realistic and accept that sometimes you will lose. You should only be trading with money that you can afford to lose and do not expect to double your money over and over in a short time.

Unfortunately many advertisements lead you to have very high expectations. You may see an ad that suggests you can double your money in 7 days, for example. This does not mean you are certain to double your money, and it definitely does not mean that you can do it every 7 days with no setbacks. Doubling your money in a short time is possible but doing it over and over without losses is not realistic. Expect to take at least one step back for every two steps forward and have reasonable targets by comparing with what you might make if you invested in stocks or bonds.

Before starting forex trading for real, be sure you are armed with sound strategies that you have tested for yourself. Weigh up all of your options and remember that you are entering a risky business. Keep these currency trading tips in mind and give yourself the best chance of succeeding as a forex trader.

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Wednesday, November 24th, 2010 Introduction, Strategy No Comments

Forex Expert Advisor Reviews

Forex expert advisor reviews can be very valuable for anyone thinking of investing in the foreign exchange market. If you are thinking of buying a forex robot to do your trading for you, you should certainly look at the reviews of expert advisors or EAs which is the name generally given to currency trading robots that operate on the free software platform Metatrader 4.

Currency trading is not the easiest style of investment to learn for a beginner, especially as most people trade their accounts themselves from their home computers. It is not just a question of giving your money to the broker or investment company and hoping for good results.

If you are going to trade on the foreign exchange market without a robot, you need to be constantly analyzing all kinds of charts, graphs and technical information so that you have a chance of working out when the prices are likely to rise and fall. As you can imagine, it takes time, experience and a lot of testing to learn to do this, even assuming that you have the kind of brain that easily handles numbers and complex charts.

However, if you use a software program to trade for you, otherwise known as a forex robot or expert advisor, it will automatically make all the calculations and open and close trades according to its settings. It will operate according to a certain system but you still have control of the settings.

The most important things to look for when you are reading forex expert advisor reviews are the results that the average user is getting, and whether the robot is suitable for your level of experience and your trading style, if you have one.

If you are a beginner you may not want something that is very difficult to set up. On the other hand if an EA is getting very good results, it could be worth spending the time to master it. There is no point in paying good money for a robot that will not be successful, however easy it may be to use.

Always remember that foreign exchange trading is risky. Robots will do what they are told but the market trends will not always follow a predicted pattern. You may lose money even if past results have been good. You should only invest what you can afford to lose, even though there is huge potential to make money with forex trading.

Forex expert advisor reviews are great for picking up hints and tips about how to use the software as well as comparisons of the different robots that are available.

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Wednesday, July 1st, 2009 Strategy No Comments

Forex Trading Strategies: 3 Golden Rules

When you have read a few forex books or visited a few online currency trading forums, you will quickly realize that there are almost as many different forex trading strategies as there are traders. People have their own style; but more than that, in currency trading there are many different ways of making money.

So there is not one top forex system that you must follow to profit from foreign exchange trading. However, there are some guidelines that apply to the way in which you approach your trading and these are true for just about anybody. I call them the golden rules of trading.

1. Follow The Trends

Most forex trading strategies and systems focus on identifying trends and there is a good reason for that. Whether the trend shows a rise or a fall, get in to go long or short as appropriate and do not go against it. Bucking the trend will see you losing money fast.

2. Safeguard Your Funds

Risking too much on one trade has been the downfall of many a promising trader. Never risk a lot of money on a single trade, however strong your feelings may be that this one cannot go wrong. They can all go wrong.

So how much do you risk? It depends on your strategy and how much it matters to you if you lose all of your funds, but never more than 5% of your balance. 2% per trade is a safer option.

Some people maintain the percentage as their funds increase, so that they gradually risk more in real terms on each trade. That is up to you but consider carefully before you do this. When you have more money in your account, you will probably be more unhappy if it is wiped out, so you may want to keep the same position size (reducing your percentage risk) as your funds increase.

3. Set Goals For Each Trade

Have a clear profit goal for each trade, so that before you enter, you have already decided when you will take the profit and close. Do not get greedy and try to stay in there for more and more.

In the same way, if it turns bad, do not try to hold on in the hope that the market will turn back your way. Cut your losses and get out. Using stop losses to do this automatically is a very wise strategy.

Those are the first three golden rules of currency trading: the guidelines that can help you develop profitable forex trading strategies, whatever your system.

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Monday, June 29th, 2009 Introduction No Comments

Forex Trading Forum Hints And Tips

A forex trading forum is a popular place for beginners to go when they are just getting into forex trading. There are many internet forums and you can discuss any aspect of currency trading there. But should you trust the answers that you get? Are these online discussion sites really a valuable source of information, or just a drain on your time?

Forums began in the time of the Roman empire. At that time they were a physical space in the middle of the city a little like a market place but without a market. The men of the city would meet there to hear and debate matters of importance such as politics and the law.

Since then the word has come to mean any location or group in which discussion takes place and opinions can be aired. On the internet, it has gradually taken over from the term ‘bulletin board’ which was used for the old style of sites where members could post messages. The new format of forums is much easier to navigate and people can more easily get involved in discussions than they could on bulletin boards.

This means that it is very easy to either start or join in a discussion. If you have a question you can post it and you are almost certain to see replies. For some aspects of foreign exchange trading this can be very useful.

For example if you are thinking of investing money, time or both in a forex system, ebook, robot or training program, it can be very useful to check a forex trading forum for reviews and feeback from people who have already used the product that you are considering. Use the search facility to see if there is already a thread about the product and if not, start one by asking if anyone has experience of the product. Feedback from other users can help you decide whether something would be suitable for you or not.

It is best to find several different opinions before making up your mind. Remember that one person’s opinion is only one view and you might not agree with that person. They might have been looking for something different, or they might have had unusually good or bad luck with the product. If you find a lot of different opinions it is much more helpful. You can see what kind of person has a good experience with the product and what kind of person has a bad experience.

If you have questions about trading, a currency trading forum can be useful too. But again you need to think about who is replying to your question. You might not necessarily want to trust everybody.

Sometimes different users will disagree with each other because they have different ways of making money with FX. There are many different methods and when you get conflicting advice it can be confusing. So do not be distracted by all the people who will tell you that their way is best.

It is very easy to sound like an expert in a place where nobody knows you. All a person has to do is to make a lot of posts and sound experienced. In fact a high post count often just means that the person likes hanging out in the forum and does more talking than trading. Some users may never even have traded for real at all, but only used demo accounts. Remember that you do not know who these people are. You should not automatically trust everybody’s opinion.

Finally, take care that you are not becoming an addict yourself. It is very easy to waste a lot of time following random discussions and chatting. Have a clear purpose when you enter a forex trading forum and leave when you have found what you were looking for.

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Tuesday, June 23rd, 2009 Strategy No Comments