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Choosing a Forex broker
By Teddy
Today’s Forex trading is well known as a lucrative way to make money
online. It became an essential part for investor’s portfolio as you can
simply gain thousands in minutes by trading currencies at home. For those who
are new to the trade, Forex means Foreign Exchange Market where it involves
buying and selling the different currencies of the world. Profits are made through
the difference of selling and buying price – you earn when you buy-low
sell-high while lose when buy-high sell-low.
Besides start learning in Forex trading, choosing a suitable Forex broker is equally important to get you
started in Forex market. As in any trading market, individual trades in Forex
market are mostly done via currency brokers. There are certain issues you must
consider when choosing for suitable Forex broker, listed below are a few of
the important ones.
1. Certification of the Forex brokerage firm
Forex trading involves a huge sum of money. As a trader, I am sure you want
your money handle by reliable broker. This is why certification of the Forex
brokerage firm is important. Traders are recommended to deal only with authorized
currency traders. If you are trading in United States, make sure your Forex
brokerage firm is registered with Futures Commission Merchant (FCM) and regulated
by the Commodity Futures Trading Commission (CFTC). Also, most large brokerage
firms are connected in some way to a bank or financial institution. Since the
majority of Forex business is based on credit, the partnership with financial
institution is crucial to offers their clients better in Forex investment.
2. Low spread trading
Currencies are normally traded in pairs of ask-bid price. The difference of
the selling (bid) and the buying (ask) is known as spread. For example of EUR/USD
1.2435/1.2440, the Forex quote here means you can buy 1 Euro Dollar with 1.2440
USD or sell 1 Euro 1.2435, and the spread is (1.2440 – 1.2435) = 0.0005.
As Forex brokers do not charge commissions on their client trades, they are
making money off the spreads. If the spreads are low, this means they are offering
a cheaper service and thus traders have better profit value. Thus, Forex brokerage
that offers lower spread is more preferred.
3. Trading tools and tips
Different Forex brokers will offer different trading tips and tools. When
selecting Forex broker, check what kind of trading tools and analysis data they
are offering. Not all brokers offer the same set of tools and data thus careful
consideration is necessary. A good Forex brokerage firm should offers real-time
charts, technical analysis tools, real-time trade alerts, and website support.
If you are new to Forex trading, you also look for broker that offers demo account
before opening up a real account.
4. Avoid brokers with strict margin rules
Strict Margin Rules - When you are trading with borrowed money, your broker
has a say in how much risk you take. As such, your broker can buy or sell at
its discretion, which can be a bad thing for you. Let's say you have a margin
account, and your position takes a dive before rebounding to all-time highs.
Even if you have enough cash to cover, some brokers will liquidate your position
on a margin call at that low. This action on their part can cost you very much.
Unfortunately, you cannot verify this factor before starting up your account
with the broker. The best way to avoid this kind of brokers is to ask more in
Forex trading forums or other experienced Forex traders.
5. Leverage level
Some brokers offer 1:50 trade margins and some offer 1:200. The fact is leverage
level might varies a lot for different brokerage firm. While higher trade margin
does not guarantee your profit in Forex market, higher trade margin however
will give you a better chance to win big when the opportunity comes. High leverage
level is especially important when you have little capital outlay.
By filtering Forex brokers with the condition listed above, you actually raise
your profit chances in Forex trading. Without a doubt, Forex is gaining its
popularity fast against other kind of trading. No limited market access, no
liquidity issues-after market hours, zero commission fees, low capital requirements
with high leverage rates, and no restrictions on short selling -- Forex can
be very beneficial to a variety of people. Like any other trading business,
if you are new to it, best advice you can get is to learn and practice more
before you test your ‘wings’. Seminars, eBooks, Internet, papers,
video courses – all these are helpful to raise your confidence level before
you trade with your real hard-earn dollars. Plan your investment wisely by investing
first on yourself; you shall get your reward at the end of the road. About the Author "It's okay to be a newbie!" Learn Forex trading from scratch at www.golearnforex.net.
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