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Foreign Exchange Brokers: What To Look For

Foreign exchange brokers that cater to the retail investor are springing up all of the time all over the world. What should you look for in selecting a forex broker and how can you be sure you are getting the best?

Everybody starts out currency trading with hopes of having big returns and some of the publicity that you will see will make this sound almost inevitable. In fact of course currency trading is full of risk and many people get their fingers burnt. You could easily lose your startup funds, especially if you start trading for real too soon.

Be sure that you are signing up with a broker who states the risks clearly. When you are starting out you should probably look for a company that will protect you from margin calls by automatically closing your trades if your funds become exhausted. Of course this is a bad situation that you will hope to avoid but it is better than finding you are committed to paying more than you had in the account.

Forex traders often work with 100, 200 or even 400 times leverage. This means that the funds in your account can control 100-400 times their own value. With $100 of the funds in your account you can trade lots of $10,000. So if something goes wrong and the price moves unexpectedly against you, you could be down by more than $100. You can put your own stop losses into place but it is useful to have a broker who will do this in case you forget one time.

Of course you also want to make sure that the brokerage company is honest and will not disappear with your money. If they have been around for a while or form part of a large, reputable company that is a good sign. Another valuable point to consider is whether they are members of any regulatory bodies. This may give you protection if the company goes out of business.

Foreign exchange brokers will offer you various services including charts and technical analysis through their software platform. It is important to know what charts you are likely to need not only for your current system but for other ways that you may want to trade in the future. Compare the charts provided by the different brokers. Think about how you would want to use and combine them and make sure that your chosen broker offers what you need.

You will also want to be sure about the reliability of the software. If it goes offline you could lose the chance to control a trade. Try to find feedback on forex forums or the company’s own forum if there is one, to check how satisfied users are with the reliability of the software platform and also the support provided. Forex is a 24 hour market during the business week and you should be able to get support 24 hours too.

Spread is something that most traders look at when selecting a brokerage account. This is the difference between the bid and ask prices and it is how forex brokers make their money. You may be tempted to go with a company because they offer a low spread but remember that it may not be permanent and probably does not apply to all currency pairs. Spread should not be your only or even your main consideration when considering foreign exchange brokers.

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Saturday, June 20th, 2009 Brokers 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