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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 couple of years, more than one unregulated forex trading broker has been shut down by authorities 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 authority is the Financial Services Authority, and in the US, it is the National Futures Association.
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, 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 $1000 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 $400,000. The risk of using larger levels of leverage means that if your trade is a losing one, 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.
You will need a forex trading broker who will provide you with a suitable charting and analysis programme with the trading account. Some currency dealer will run MetaTrader charting with their platform, and this is a very useful addition for a foreign currency dealer. This enables the investor to take a trade directly from the charts, and ensures that the investor gets a reasonable price.
Over the past couple of years, more than one unregulated forex trading broker has been shut down by authorities 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 authority is the Financial Services Authority, and in the US, it is the National Futures Association.
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, 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 $1000 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 $400,000. The risk of using larger levels of leverage means that if your trade is a losing one, 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.
You will need a forex trading broker who will provide you with a suitable charting and analysis programme with the trading account. Some currency dealer will run MetaTrader charting with their platform, and this is a very useful addition for a foreign currency dealer. This enables the investor to take a trade directly from the charts, and ensures that the investor gets a reasonable price.
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For further help and assistance about forex trading and how to find a suitable forex trading broker go to Forex Village, a leading forex trading foreign currency and education website.
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