The Forex Broker - And Why You Need One
Before beginning your career at FOREX trading, you will need to set up an account with a good FOREX broker.
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Unless you are an expert FOREX trader already, you will want to use a FOREX broker to handle your transactions.
Which brings up the obvious question: What exactly is a FOREX broker?
Strictly speaking, any trading broker is an individual, or a company, that buys, and sells whatever the investment product is, according the investor's instructions. A FOREX Broker will earn his or her money by charging a commission, or a fee for their services.
To be of any genuine benefit to an investor, a FOREX broker should be associated with a large financial institution, such as a bank. This requirement is important as the broker must be able to have access to the funds necessary for margin trading. In the United States, a broker also needs to be registered as a Futures Commission Merchant (FCM), with the Commodity Futures Trading Commission (CFTC). This helps protect you, the investor, against fraud and abusive trade practices at the hands of an unscrupulous FOREX broker.
SETTING UP A FOREX TRADING ACCOUNT WITH A FOREX BROKER
As you begin trading in foreign currencies, you, if you are normal, will almost certainly feel overwhelmed by not only the information you need to learn to be successful, but also by the number of brokers who are offering their services online, and, in investment magazines, and newspapers. Choosing the "right" FOREX broker for you is going to require a little bit of research on your part. Rest assured, however, that the time and "due diligence" spent in this research will give you a much better insight into the services that are available, and, how realistic the fees are which are charged by the various brokers offering their services.
As you might expect, when it comes to choosing the right FOREX broker for your needs, out of all the confusing advertisements, the best advertising is going to be word-of-mouth advertising. A good review from several satisfied customers is just as valuable in FOREX trading as it is for choosing a doctor or a real estate agent. If you have friends, family, or associates who are investing in the foreign exchange market, talk to them to see who they are dealing with, and find if they have any complaints or difficulties in dealing with any particular broker.
If you don't have any direct contacts yourself, you might try spending a little time on some FOREX trading forums. Watch out, however, as sometimes a glowing endorsement from what appears to be a fellow forum member is actually a thinly-veiled ad by the broker.
Once you HAVE done your homework, it's time to move forward and select a few online brokers to contact. Start with their Internet help desks, and, they should have something like this, or how are they going to help you, to see how quickly, and satisfactorily, they respond to your enquiries. Bear in mind, however, that, as with dating and marriage, your pre-sales experience may be better than your after sales experience. Of course, this is something to keep in mind with any online business, not just that of a FOREX broker.
A GOOD FOREX BROKER SHOULD BE FAST, BUT NOT FURIOUS
Customer satisfaction, and safety in trading, are just two of the requirement for choosing a good FOREX broker. Speed and efficiency are important in this sometimes volatile trading market.
Which makes this a good time to mention that, if you intend to keep track of what is going on in the global foreign currency exchange market, you will eventually need a good FOREX trading robot, unless you intend to sit at your computer for 24 hours a day!
However, a FOREX trading robot only helps YOU stay on top of what is happening in the various FOREX markets around the world, which, in turn, helps you make the decision about what, when, why, and how to trade.
To make the trades that will make you money, you will need to find a FOREX broker who will execute your buy and sell orders quickly, and with minimum slippage.
Slippage, by the way, is the difference between buy or sell price in your order, and the price at which it the order is actually executed. Slippage is common in many investment actions.
Any online FOREX broker worth your time and money should offer automatic order 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, and keep you informed as to any changes in their policies, the activity of the markets.
FOREX BROKER FEES
Obviously, you will want to know what broker fees are involved.
What is the spread?
The spread, by the way, occurs because a FOREX broker is, in essence, selling one currency at one price and buying another at a different price.
You will want to know if the spread is fixed or variable, depending on the type of trading account?
Are mini accounts (that's probably you, at the start) subject to wider spreads?
Are there any other charges you should know about?
Just for your info, smaller spreads mean more profit for the trader, but there may be a trade-off between spread and service. Don't throw a dart at a list of brokers, or choose a FOREX broker on their claims alone, but, look at the overall picture objectively before deciding to go with a particular one.
Mentioned earlier in this discussion, margin accounts, buying by paying only a portion of the price, are the lifeblood of FOREX trading, and, as such, it is important to be sure you understand the broker's margin terms before setting up an account with a FOREX broker.
You MUST know his or her margin requirements, and how margin is calculated.
Here are a few things to consider about margin:
TRADING SOFTWARE - FOREX TRADING ROBOTS
- Does the margin change according to the currency traded?
- Is it the same every day of the week?
- Are there different margins for mini, and standard, accounts.
These days, trading software is very important for almost any online trading, including FOREX trading. There is just so many factors to consider and so many trades happening, that most trading professionals rely on some sort of trading robot.
Other information to find out about any potential FOREX broker includes the broker's policy regarding minimum account balances, interest payments on account balances, which currencies can be traded and whether or not you can trade non-standard sized lots. You should also find out whether clients' funds are insured and what is the extent of that insurance.
If your FOREX broker offers trading software, and, he or she should, you will usually be able to get a feel for the options that are available by trying out a demo account. You are looking for reliability and the ability to perform well in fast-moving markets. The software offered by the FOREX trader should offer automatic trading, and may have special features such as trailing stops and trading from the chart. Be aware that some features may only be available at an extra cost, so be sure you realize what your trading needs are going to be, and how much the broker charges to provide them.
While trading software provided by your FOREX broker may be valuable, in many cases there are more precise and flexible options available, such as FOREX Robot.
Law Book for the Layman - Broker
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