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Forex Brokers
By: Simon Harris
Most FOREX traders use a broker to handle their transactions. What exactly is a
broker? Strictly speaking, a broker is an individual or a company that buys and
sells orders according the investor's decisions. Brokers earn money by charging
a commission or a fee for their services.
A FOREX broker needs to be associated with a large financial institution such as
a bank in order to provide the funds necessary for margin trading. In the United
States a broker should be registered as a Futures Commission Merchant (FCM) with
the Commodity Futures Trading Commission (CFTC) as protection against fraud and
abusive trade practices.
Before trading FOREX you need to set up an account with a FOREX broker. You may
feel overwhelmed by the number of brokers who offer their services online.
Deciding on a broker requires a little bit of research on your part, but the
time spent will give you insight into the services that are available and fees
charged by various brokers.
The best advertising is word-of-mouth advertising, and this is just as valid in
FOREX trading as it is for any other type of business. Talk to friends and
associates to see who they are dealing with and find if they have any complaints
or difficulties in dealing with a particular broker.
You could try selecting a few online brokers and contact their Internet help
desks to see how quickly they respond to enquiries and whether or not they
answer questions to your satisfaction. Keep in mind, however, that pre-sales
service may be better than after sales service. This can be true for any online
business, not just FOREX brokers.
Customer satisfaction and safety are just part of the story. You want to find a
broker who executes orders quickly and with minimum slippage. All online brokers
should offer automatic execution and have clear policies regarding slippage.
They should be able to tell you how much slippage can be expected in both normal
and fast-moving markets.
Next you want to know the fees involved. What is the spread? Is spread fixed or
variable according to the type of account? Are mini accounts subject to wider
spreads? Are there any other charges? Smaller spreads mean more profit for the
trader, but there may be a trade-off between spread and service. Look at the
overall picture before deciding to go with a particular broker.
Margin accounts are the lifeblood of FOREX trading, so be sure you understand
the broker's margin terms before setting up an account. You need to know the
margin requirements and how margin is calculated. Does margin change according
to the currency traded? Is it the same every day of the week? Some brokers may
offer different margins for mini and standard accounts.
Trading software is very important for the online FOREX trader. Get a feel for
the options that are available by trying out a demo account at a few online
brokers. Above all, you are looking for reliability and the ability to perform
well in fast-moving markets. The software should offer automatic trading and may
have special features such as trailing stops and trading from the chart. Some
features may only be available at an extra cost, so be sure you understand what
your trading needs are and how much the broker charges to provide them.
Other information to find out about includes the broker's policy regarding
minimum account balances, interest payments on account balances, which
currencies can be traded and whether or not non-standard sized lots can be
traded. You should also find out whether clients' funds are insured and the
extent of that insurance.
About the Author:
This article provided courtesy of http://www.about-forex.net |
