Most Forex traders will make use of a broker to handle their transactions and so it is extremely important to understand just what a foreign currency broker does and what he can do for you.
In general terms a broker is a person who both buys and sells on your behalf on the basis of decisions that you, the foreign currency trader, make and which you pass to the broker as orders for him to trade. Your broker will then earn his money in several different ways by laying down a range of fees for his work.
In the case of Forex trading, a broker needs to be associated with a sizeable financial institution, such as an insurance company or bank, in order to provide the funds necessary for trading on the margin. The broker also needs to be registered and, in the United States, this means being registered with the Commodity Futures Trading Commission (CFTC) as a Futures Commission Merchant (FCM) to protect himself from both abusive trade practices and fraud. Before you can start trading you will have to create an account with a broker and could discover that the number of brokers who offer their services online is a bit overwhelming. Picking a Forex broker will require some research on your part, however, the time which you spend carrying out this research will give you an insight into the services that are available and to the fees that are being charged by different brokers.
As is true for with most businesses there is no better advertisement than word-of-mouth advertising and so it is often a good plan to talk with colleagues and friends to see who they are using and if they have any difficulties with using their broker.
If this is not an option, then you could try picking out a few online brokers and getting in touch with their help desks to see just how fast they respond to your enquiry and whether or not you get a sound answer to your questions. Be aware, however, that pre-sales service is often better than after sales service.
One very important factor is to seek out a broker who executes orders both quickly and with minimum slippage. Every online broker ought to offer automatic execution of orders and should have a clearly stated policy about slippage. Your broker should be capable of telling you exactly how much slippage you can expect in both normal trading and in fast-moving markets.
Next, you have to find out just what fees a broker will charge and, of utmost importance, what spread he uses? Additionally, is this spread variable or fixed depending upon the type of account? Are all accounts subject to a single spread or are there, for example, wider spreads on mini Forex accounts?
You should take care here. In general, tight spreads produce higher profit for the trader, however there can often be a trade-off between the tighter spread and the service which you are provided with. Study the overall picture before select a particular broker.
Margin accounts are the background of Forex trading and so you must be happy that you fully understand a broker's margin terms before you set-up an account. You must know just what the requirements of margin trading are and exactly how the margin is determined. For example, does the margin change according to the currency being traded and does it remain the same on each day of the week? Is there a difference in the margin for standard and mini accounts?
The software used for trading is also very important for the online Forex trader. Take the opportunity to get a feel for the available software by trying out demonstration accounts with different online brokers. You need to see both reliability and the ability to perform well in fast-moving markets and software should offer automatic trading and incorporate special features such as trailing stops and trading from the chart. Certain features might only be provided at an extra cost, so ensure that you understand exactly what your trading needs are and how much the broker will charge you to meet them.
Of course there are other things that you will want to know such as the broker's policy in regard to minimum account balances, interest payments, which currencies may be traded and whether or not non-standard sized lots may be traded. You should also look at whether or not clients' funds are insured and, if they are, the extent of such coverage.
Author Resource:-
LearningForexTradingOnline.com provides information on all aspects of foreign currency trading including Forex mini trading and is the perfect place to learn forex trading online
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