Many currency traders have been attracted by the ability to make positive returns while the stock markets plummet. Others are attracted by a market which is open 24 hours a day. 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 traders 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 the broker to carry out 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 EUR/USD and JPY/USD will be around 2 or 3 pips. Brokers with spreads wider than 4 or 5 pips for these major currency pairs should be avoided.
The basic aim of hiring a money manager is to have a professional looking over the market for the investor. In Forex, traded spreads are calculated in a special unit known as ‘pips.’ Spreads basically refer to the amount in which a particular currency is bought and sold at a given time, so all effective managed forex reviews will take into consideration. An important thing to understand is that the exchange of currencies does not take place in the central exchange. This means that the rate of exchange is likely to vary depending upon the expertise of the money manager. This increases the importance of conducting a thorough managed forex review, and is especially important for active forex traders.
Investors who used to trade with shares on the stockmarket, are not familiar with leverage, and and who move into currency 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 currency profits, however it can also increase the losses for forex trading activities. For example, if a broker offers 50 times leverage, this means that if you have a balance of $10,000, you can trade with an amount of $500,000.
Similarly, if you have a $10,000 balance in your currency trading account, and your forex trading broker offers leverage of four hundred, then you can trade with a notional amount of $4,000,000. The risk of using a lot of leverage means that if your trade is an unprofitable one, then you could get wiped out very quickly, and end up broke.
In the currency market, prices move very fast, in miliseconds, and so it is very important that your forex trading broker can ensure that your trades are executed just as fast, and at the price that you require. So for good measure, before you open a realtime forex 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 foreign exchange market.
Another consideration to bear in mind is that you will need a forex trading broker who offers a comprehensive charting package along with the trading account. An increasing number of brokers offer MetaTrader charting with their platform. This enables the trader to take a trade directly off the charts, and ensures that the trader gets the best possible price.
For more information about forex brokers and forex trading strategies go to the Forex Village.com
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