Forex Broker Choice: Factors
Monday 1 November 2010
One of the basic factors of your success in the forex market is a correct broker choice, or, in other words, the companies in which you will open the bill and through which will spend currency transactions.
If you are new to the forex market, it is recommended that you find a broker to help with your forex trading strategy and transactions. There are a wide variety of brokers available to you, so be prepared to ask some main questions. These include:
The sum of your starting capital
So, the basic factor at broker choice is the size of your starting capital. The overwhelming majority of broker companies demand the deposit over $2,000. The companies are widespread also, beginning to work with $10,000. And it does not mean, that for a greater sum of the enclosed means you will offered the best conditions and absolute guarantees of duly payments and to safety of earnings. All depends on the concrete service provider. There are offers to begin forex market trading with $1,000 and even less (so-called mini-forex market) when your position is not deduced on the market directly but only by means of summation of positions of several participants. If you adhere to belief that it is necessary to start to work only with solid banks the size of your bill cannot be less than $50,000, and more often $100,000.
That is, Wide Range of Leverage Options - Leverage is necessary in forex because the price deviations (the sources of profit) are merely fractions of a cent. Leverage, expressed as a ratio between total capital available to actual capital, is the amount of money a broker will lend you for trading. For example, a ratio of 100:1 means your broker would lend you $100 for every $1 of actual capital. Many brokerages offer as much as 250:1. Remember, lower leverage means lower risk of a margin call, but also lower bang for your buck (and vice-versa).
Note: Your broker offers high leverage if you have limited capital. If capital is not a problem, any broker with a wide variety of leverage options should do. A variety of options lets you vary the amount of risk.
Main rule which it is necessary to adhere at definition of the starting sum of your capital - loss even all sum should not be ruinous. It is not necessary to perceive seriously also offers of the tenders with $100, etc. The optimum quantity of the enclosed means, especially beginning player is in a range $2000 - $10000.
Broker's reputation
Before an investment it is necessary to collect full information about your future broker. Pay attention for the period of existence of the company in the market of services and broker license. It is obvious, that more "age" brokers are more preferable than beginners because of stability and reliability. Though sometimes the new companies offer the most comfortable operating conditions. Ask familiar forex market traders or visit forums on the Internet, devoted to currency forex market trading. Usually facts of swindle don't remain unnoticed in forex trader's environment. Certainly, it is possible to come across an anti-advertising but if the name of your potential broker often appears in various black lists, it is necessary to concern to such facts with enhanced attention. Choose those brokers about whom it will be possible to collect as many as possible positive responses.
Unlike equity brokers, forex brokers are usually tied to large banks or lending institutions because of the large amounts of capital required (leverage they need to provide). Also, forex brokers should be registered with the Futures Commission Merchant (FCM) and regulated by the Commodity Futures Trading Commission (CFTC). You can find this and other financial information and statistics about a forex brokerage on its website or on the website of its parent company. Bottom line: Make sure your broker is backed by a reliable institution!
Operating time
The preference should be given the companies which open at night on Monday and finish job more close to midnight on Friday. Imagine, that you leave a profitable position on target with the purpose to earn more. Put the protective order so that even at a failure to earn a little and go easy to have a rest, hoping noticeably to increase the capital. Can happen, that at night on Monday there was the unexpected event promoting sharp jump of a forex rate against your position. The broker who comes on job to nine mornings, will execute the protective order under that price which he will see on the monitor. Thus, because of a break in job of the broker to you will leave risky enough a position opened on the days off.
Account Types
Many brokers offer two or more types of accounts. The smallest account is known as a mini account and requires you to trade with a minimum of, say, $250, offering a high amount of leverage (which you need in order to make money with so little initial capital). The standard account lets you trade at a variety of different leverages, but it requires a minimum initial capital of $2,000. Finally, premium accounts, which often require significant amounts of capital, let you use different amounts of leverage and often offer additional tools and services.
Note: Make sure that the broker you choose has the right leverage, tools, and services relative to your sum of capital.
Commission fee
By granting services in the forex market the broker earns only a so-called spread - a difference between purchase price and sale price of currency. Do not confuse forex market to an equity market where from each transaction commission fee are kept from you. Overwhelming majority of brokers on forex market earns only a spread. Therefore if the bank or dealing center at which any additional commission is provided will get to you, safely pass to search of other variant as it is excessive to remind, that any commission fee negatively affect a status of your bill. It is necessary to remember, that everywhere there is a commission for carry of a position in day - so-called Swap. But Swap has feature to be not only negative, but also positive. The status of your deposit depends on commission fee.
Spread
Spread - the basic earnings of the broker. There are two versions of brokers: with the fixed spread and with floating spread. The fixed spread is characterized by a constant difference between a forex rate of purchase and sale without dependence from a market situation. Many dealing centers practise a rule of a floating spread, being limited to a rule, that the steady spread is saved in the quiet market. However practically every day there are some moments of sharp fluctuation of the prices in which a spread's enlargement on 50 (!) pips not only creates inconveniences, but it can appear rather pernicious for the deposit. But the floating spread has advantages. For example, in the quiet market the floating spread can decrease up to 1-2 pips when fixed remains to constants in any situation.
That is, Low Spreads is the difference between the price at which a currency can be purchased and the price at which it can be sold at any given point in time. This difference is how forex brokers make money because they don't charge a commission. In comparing brokers, you will find that the difference in spreads in forex is as great as the difference in commissions in the stock arena. Note: Lower spreads save you money!
Various additional restrictions
In this item it would be desirable to warn beginning forex trader that many broker firms practise additional restrictions on conducting forex market trading. The most widespread restriction is a position about obligatory quantity of transactions for a time interval, for example for a month. Closely concern to the conclusion of the contract, define, what restrictions for you are obviously unacceptable.
Technical support
Without fail there should be a constant round-the-clock communication with the forex trader, it is desirable not only by means of the electronic terminal, but also ordinary telephone. Technical support in the majority of the broker's companies works from 9 up to 18. Unfortunately, it is difficult to test job of communication before opening the bill.
Additional service for clients
Various programs of a technical analysis, reception of free-of-charge quotations and news will essentially facilitate your life, especially in the first months of trading. Pay attention to this item if there was a choice before you between two equivalent broker firms.
Software convenience
Certainly, it is possible to get used to any software. But nevertheless before the conclusion of the contract it is recommended to establish a demo account. The friendly, clear interface will promote pleasant job since the first days.
forex brokers offer many different trading platforms for their clients. These trading platforms often feature real-time charts, technical analysis tools, real-time news and data, and even support for trading systems - that is Extensive Tools and Research. Before committing to any broker, be sure to request free trials to test different trading platforms and offered Tools and Research. Brokers usually also provide technical and fundamental commentaries, economic calendars etc. Note: Find a broker who will give you what you need to succeed!
Avoid the following things:
If you are new to the forex market, it is recommended that you find a broker to help with your forex trading strategy and transactions. There are a wide variety of brokers available to you, so be prepared to ask some main questions. These include:
- What is your spread?
(Hint: The lower the spread the more money you make!)
- What are your credentials?
(Hint: There are certain affiliations you should look for)
- What tools are available to help me learn more?
(Hint: Not all broker firms are created equal. Find out who offers the best resources and information to help you make the smartest trading decisions)
- What is your leverage?
(Hint: This is the determining factor on how much money you are able to make with each investment)
- Dealing centers;
- Investment banks.
The sum of your starting capital
So, the basic factor at broker choice is the size of your starting capital. The overwhelming majority of broker companies demand the deposit over $2,000. The companies are widespread also, beginning to work with $10,000. And it does not mean, that for a greater sum of the enclosed means you will offered the best conditions and absolute guarantees of duly payments and to safety of earnings. All depends on the concrete service provider. There are offers to begin forex market trading with $1,000 and even less (so-called mini-forex market) when your position is not deduced on the market directly but only by means of summation of positions of several participants. If you adhere to belief that it is necessary to start to work only with solid banks the size of your bill cannot be less than $50,000, and more often $100,000.
That is, Wide Range of Leverage Options - Leverage is necessary in forex because the price deviations (the sources of profit) are merely fractions of a cent. Leverage, expressed as a ratio between total capital available to actual capital, is the amount of money a broker will lend you for trading. For example, a ratio of 100:1 means your broker would lend you $100 for every $1 of actual capital. Many brokerages offer as much as 250:1. Remember, lower leverage means lower risk of a margin call, but also lower bang for your buck (and vice-versa).
Note: Your broker offers high leverage if you have limited capital. If capital is not a problem, any broker with a wide variety of leverage options should do. A variety of options lets you vary the amount of risk.
Main rule which it is necessary to adhere at definition of the starting sum of your capital - loss even all sum should not be ruinous. It is not necessary to perceive seriously also offers of the tenders with $100, etc. The optimum quantity of the enclosed means, especially beginning player is in a range $2000 - $10000.
Broker's reputation
Before an investment it is necessary to collect full information about your future broker. Pay attention for the period of existence of the company in the market of services and broker license. It is obvious, that more "age" brokers are more preferable than beginners because of stability and reliability. Though sometimes the new companies offer the most comfortable operating conditions. Ask familiar forex market traders or visit forums on the Internet, devoted to currency forex market trading. Usually facts of swindle don't remain unnoticed in forex trader's environment. Certainly, it is possible to come across an anti-advertising but if the name of your potential broker often appears in various black lists, it is necessary to concern to such facts with enhanced attention. Choose those brokers about whom it will be possible to collect as many as possible positive responses.
Unlike equity brokers, forex brokers are usually tied to large banks or lending institutions because of the large amounts of capital required (leverage they need to provide). Also, forex brokers should be registered with the Futures Commission Merchant (FCM) and regulated by the Commodity Futures Trading Commission (CFTC). You can find this and other financial information and statistics about a forex brokerage on its website or on the website of its parent company. Bottom line: Make sure your broker is backed by a reliable institution!
Operating time
The preference should be given the companies which open at night on Monday and finish job more close to midnight on Friday. Imagine, that you leave a profitable position on target with the purpose to earn more. Put the protective order so that even at a failure to earn a little and go easy to have a rest, hoping noticeably to increase the capital. Can happen, that at night on Monday there was the unexpected event promoting sharp jump of a forex rate against your position. The broker who comes on job to nine mornings, will execute the protective order under that price which he will see on the monitor. Thus, because of a break in job of the broker to you will leave risky enough a position opened on the days off.
Account Types
Many brokers offer two or more types of accounts. The smallest account is known as a mini account and requires you to trade with a minimum of, say, $250, offering a high amount of leverage (which you need in order to make money with so little initial capital). The standard account lets you trade at a variety of different leverages, but it requires a minimum initial capital of $2,000. Finally, premium accounts, which often require significant amounts of capital, let you use different amounts of leverage and often offer additional tools and services.
Note: Make sure that the broker you choose has the right leverage, tools, and services relative to your sum of capital.
Commission fee
By granting services in the forex market the broker earns only a so-called spread - a difference between purchase price and sale price of currency. Do not confuse forex market to an equity market where from each transaction commission fee are kept from you. Overwhelming majority of brokers on forex market earns only a spread. Therefore if the bank or dealing center at which any additional commission is provided will get to you, safely pass to search of other variant as it is excessive to remind, that any commission fee negatively affect a status of your bill. It is necessary to remember, that everywhere there is a commission for carry of a position in day - so-called Swap. But Swap has feature to be not only negative, but also positive. The status of your deposit depends on commission fee.
Spread
Spread - the basic earnings of the broker. There are two versions of brokers: with the fixed spread and with floating spread. The fixed spread is characterized by a constant difference between a forex rate of purchase and sale without dependence from a market situation. Many dealing centers practise a rule of a floating spread, being limited to a rule, that the steady spread is saved in the quiet market. However practically every day there are some moments of sharp fluctuation of the prices in which a spread's enlargement on 50 (!) pips not only creates inconveniences, but it can appear rather pernicious for the deposit. But the floating spread has advantages. For example, in the quiet market the floating spread can decrease up to 1-2 pips when fixed remains to constants in any situation.
That is, Low Spreads is the difference between the price at which a currency can be purchased and the price at which it can be sold at any given point in time. This difference is how forex brokers make money because they don't charge a commission. In comparing brokers, you will find that the difference in spreads in forex is as great as the difference in commissions in the stock arena. Note: Lower spreads save you money!
Various additional restrictions
In this item it would be desirable to warn beginning forex trader that many broker firms practise additional restrictions on conducting forex market trading. The most widespread restriction is a position about obligatory quantity of transactions for a time interval, for example for a month. Closely concern to the conclusion of the contract, define, what restrictions for you are obviously unacceptable.
Technical support
Without fail there should be a constant round-the-clock communication with the forex trader, it is desirable not only by means of the electronic terminal, but also ordinary telephone. Technical support in the majority of the broker's companies works from 9 up to 18. Unfortunately, it is difficult to test job of communication before opening the bill.
Additional service for clients
Various programs of a technical analysis, reception of free-of-charge quotations and news will essentially facilitate your life, especially in the first months of trading. Pay attention to this item if there was a choice before you between two equivalent broker firms.
Software convenience
Certainly, it is possible to get used to any software. But nevertheless before the conclusion of the contract it is recommended to establish a demo account. The friendly, clear interface will promote pleasant job since the first days.
forex brokers offer many different trading platforms for their clients. These trading platforms often feature real-time charts, technical analysis tools, real-time news and data, and even support for trading systems - that is Extensive Tools and Research. Before committing to any broker, be sure to request free trials to test different trading platforms and offered Tools and Research. Brokers usually also provide technical and fundamental commentaries, economic calendars etc. Note: Find a broker who will give you what you need to succeed!
Avoid the following things:
- Sniping or Hunting
Prematurely buying or selling near preset points (that is Sniping or Hunting)- are shady acts committed by forex brokers to increase their profits. Obviously, no broker admits to committing these acts, but a notion that a broker has practiced sniping or hunting is commonly believed to be true. Unfortunately, the only way to determine which brokers do this and which brokers don't is to talk to fellow traders.
Note: Talk and discuss on forums to find out who is an honest broker.
- 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. Well, 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 dearly.
Note: Talk and discuss on forums to find out who is an honest broker.
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