The more we experience the more we find out that we are dependent on many things beyond our ability to control. Intelligence will only get us so far, and unless we utilise systems designed to help us apply this intelligence we are bound to fail. This is also true for the FOREX market. With FOREX, as with most trading methods, the trader is required to work through a broker or a market maker to start and complete every trade.
You can find FOREX brokers in every part of the world just as you will find currencies traded in every corner of the globe. You should, however, consider a few points when you go out shopping for the right broker to help you with your trades.
Probably the most important consideration is to ensure the FOREX broker you use has the correct qualifications. Choose a broker registered with the Commodity Futures Trading Commission (CFTC) as a Futures Commission Merchant (FCM). This means that you have legal protection against any abusive trading practices and scams that may arise.
A regulated broker means when you sign up to use their services you will have protection and insurance against any internal fraud. Importantly, your funds will remain separate from your chosen broker’s operating funds.
What business model does your chosen broker use? Some brokers are market makers while others are ECN brokers, providing a dealing desk for many traders. A quick internet search will tell you the difference between the two and which one is right for you.
Look at the types of spreads they offer. The spread is the difference between the bid and ask prices of the currencies you trade. Brokers do not make a commission on your trade instead, they take the spread as compensation. Your chosen broker may also offer fixed or variable spreads, and they can be different for large accounts and mini accounts so you will need to make yourself familiar with these differences.
Can they provide you with details of just what slippage they would expect to occur during normal and fast-moving markets? Slippage is the difference that can occur between the price you see when you tell the broker to make the trade and the price where the actual trade is made. There is always a very small delay between the moment you execute your trade on your home computer and the moment your broker makes the trade. During times of high volatility (large movements in the market) this difference can be higher, and you may find yourself paying more for a trade than you expected.
What is their margin requirement? That is, what percentage of the investment in your trades do they expect you to pay to open a trade. You also want to know about their margin calls, and the time you need to respond to such calls.
What is your chosen broker’s rollover policy? A rollover is an action taken on a trade that remains open at the end of a day’s trading. The broker may have minimum margin requirements which they use to earn interest on overnight positions. Also, they may have other requirements or conditions about you earning interest on rollovers.
Once you have done your research and have selected one or more FOREX brokers, then it is time to set up your trading account. Once you are set up and your funds clear you can begin trading.
Remember to read the trading instructions carefully to know how the broker can help you manage your trades. If you overlook some relevant details, you can lose money on your trades, so take the time to read the details. You can also ask the brokers or their support staff any questions you may have before you open your first trade.
For more on how to start trading once you have selected a broker, click here