Saturday, 23 June 2012

Forex Trading Brokers

Before a Forex trader can embark on their trading journey, one of the first thing every trader must do is selecting a Forex trading brokers. Since Forex is an over-the-counter market, it is not as heavily regulated as compared to the stock market, as a result, there are literally thousands of online broker to choose from and selecting the right broker is like going shopping on boxing day. Below is a list of five qualities that you should consider when selecting the best Forex trading brokers:

1. Company's Year in Operation and It's Financial Regulation

Because of the popularity of Forex in recent times, you will notice an insurge of brokerage company offering Forex trading in the last few years starting from 2008. Newer company does not always affect their reliability but it is advisable for a smart trader to choose an older company around 2003 or even pre-2000 as they have more experience with handling Forex transaction and possibility in most cases, provide better customer support.

Before signing up with any brokerage, it is also important to cross check rather the company is financially regulated. This ensures that your deposited money is protected in an event of a crisis so the loss of your capital will be compensated accordingly.

2. Platform Reliability and User Interface

Every brokerage offers a unique trading platform with various features that are suited to traders' need. It is important to get familiar with the particular brokerage trading platform as you will be spending most of your trading time executing your trade there. The best thing to do is before depositing real money, most brokerage offer free practice account so you can familiarize yourself with the platform and its many features.

3. Spread

Spread is the difference between the ask/bid price. This is essentially how the brokerage makes their money off their client. Well, everyone got to find their own way to make their own money right? Ideally, you want to shop for brokers that offer low spread. Typical spread range for standard account trading the most common currency: EUR/USD is 2-3 pips. Depending on the size of the account, it is even possible to go as low as 0.9-1.5 pips on EUR/USD if you negotiate with your brokerage. This is important because every trade you make, spread cuts directly into your profit. This is especially the case for scalper or daytraders who do high volume trades per day. Therefore, it is important to keep spread lows so you can keep your profit at the end of the day.

4. Leverage

Most brokerage offers 50-200 times leverage. Some even offers 400 times leverage. Leverage is of course a double-edged sword because it could mean double the rate of return on investment or double the rate of loss. It is advisable for beginning trader to start with 50x first before moving into the standard 100x leverage and move on higher when you have the capital to do so. Again, proper money management is key to long-term FX success.

5. Deposit currencies of choice

In the past, most Forex trading is conducted in US dollar as most traded currencies on the board are pegged to the US dollar. However with the instability of the US dollar, some brokerage are beginning to offer accounts in Euro or Yen. It might be a smart move to use these alternative currencies as they are becoming more reliable and rises in value in comparison with the US dollar.

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