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 around 2 or 3 pips. Spreads on currency pairs such as the Euro and GBP cross pairs will be around three or four pips. Currency dealers with spreads wider than five pips for these major currencies are not offering the trader good value, and you should find an alternative dealer.
Investors who used to trade with shares on the stockmarket, 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 your losses. For example, if a broker offers 100 times leverage, this means that if you have a balance of $10,000, you can trade with a notional $1,000,000.
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 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 will provide you with a suitable charting and analysis programme with the trading account. Most brokers today offer MetaTrader charting with their platform, and this is a very useful addon for a forex trader. This enables the trader to take a trade directly off the charts, and ensures that the trader gets the best possible trade position. - 22871
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 around 2 or 3 pips. Spreads on currency pairs such as the Euro and GBP cross pairs will be around three or four pips. Currency dealers with spreads wider than five pips for these major currencies are not offering the trader good value, and you should find an alternative dealer.
Investors who used to trade with shares on the stockmarket, 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 your losses. For example, if a broker offers 100 times leverage, this means that if you have a balance of $10,000, you can trade with a notional $1,000,000.
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 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 will provide you with a suitable charting and analysis programme with the trading account. Most brokers today offer MetaTrader charting with their platform, and this is a very useful addon for a forex trader. This enables the trader to take a trade directly off the charts, and ensures that the trader gets the best possible trade position. - 22871
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For further help and assistance about foreign exchange dealing and how to find a suitable forex trading broker go to Forex Village, a leading forex trading information web portal.
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