The number of traders who have entered the currency market in the last 12 months is staggering. Many 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 recent 12 months, there have been several unregulated forex trading brokers who have been shut down by the regulators for trying to defraud clients of their funds. One of the most important things to check with your forex trading broker is that they are regulated by the appropriate authorities. So, if you are in the UK, the relevant organsation is the Financial Services Authority, and in the US, it is the National Futures Association, alongside 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 between 2 and 4 pips. Spreads on currencies such as USD/CHF and EUR/GBP will be around three or four pips. Currency dealers with spreads wider than five pips for these currency pairs are best avoided.
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 your losses. 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, currency prices move very quickly, in miliseconds, so it is crucial 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 currency 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. - 15790
Over the recent 12 months, there have been several unregulated forex trading brokers who have been shut down by the regulators for trying to defraud clients of their funds. One of the most important things to check with your forex trading broker is that they are regulated by the appropriate authorities. So, if you are in the UK, the relevant organsation is the Financial Services Authority, and in the US, it is the National Futures Association, alongside 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 between 2 and 4 pips. Spreads on currencies such as USD/CHF and EUR/GBP will be around three or four pips. Currency dealers with spreads wider than five pips for these currency pairs are best avoided.
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 your losses. 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, currency prices move very quickly, in miliseconds, so it is crucial 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 currency 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. - 15790
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For more information about foreign exchange dealing and choosing a reputable forex trading broker go to Forex Village, a leading forex trading foreign currency and education website.