Saturday, January 16, 2016, PM | Leave Comment
Forex trading is rising in popularity with each passing day, thanks to the Internet and the brokers who ended the monopoly that banks and fund managers had on the currency markets.
Now, just about anybody can take part in the buying and selling of currencies inasmuch as you can access the Internet on your computer or mobile device.
However, the ease with which you can enter the forex markets and start trading might also be the crippling factor that makes it hard for you to go ahead and start trading forex.
To start with, before you can trade forex, you’ll need to open a trading account with an online forex broker.
Now, a simple Google search for the query “online forex broker” will return 11.5 million hits.
Hence, you can find it very hard to make a choice out of the millions of brokers that are vying for your patronage.
Nonetheless, a critical look at some factors could help you make smart decision on the online trading platform that you choose.
Speed of execution
The forex market is a global market that is opened 24-hours day for 5 days each week; hence, there are millions of individual and corporate traders in the market at any given time.
The large number of participants in the forex markets provides the market with high liquidity; yet, the liquidity often leads into rapid prices changes.
When you trade forex online, you are basically telling the broker to execute a trade on your behalf.
Hence, the speed with which the broker executes your trade can determine how your trading plan fits into the subtle price changes in the market.
If your broker doesn’t have a strong speed of execution, you might not be able to trade in “real time” and any delay between when you submitted the order and when the order is executed might eat into your profits or increase your losses.
Hence, before you start trading forex, you need to ensure that the broker you want to choose as an excellent speed of execution.
Costs, Fees, and Commissions
Online forex brokers are in business to make money in the same way that you are trading forex to make money.
Hence, it is only normal that they make some money from their service that offers you a platform to trade forex and realize your dreams.
Forex brokers typically make money on the spreads on trades – the spread is the difference between the bid price and the ask price that the broker quotes on currency pairs.
The same currency pair might have different bid and ask prices on the platform of different brokers.
It is in your best interest to find a broker that offers you competitive spreads.
It would also help your bottom line to know if the spreads are fixed or variable so that you don’t meet unpleasant surprises down the road.
Forex brokers also make money on the commissions they charge on a per trade basis.
If you intend to be an aggressive day trader or a forex scalp trader, you should try to find a broker that offers a fair commission structure that won’t eat into your profits.
Some brokers charges extra fees such as an annual account fee, some brokers might charge a fee if you don’t maintain a minimum account balance or place a minimum amount of trades in a month.
Some brokers do not charge extra fees and a broker such as Trade24 will reward you with a matched funded trading account for any loved one of your choice when you open an account.
It is important that you do your homework so that you can find the trader that offers you the best value for your patronage.
Leverage on Account
Financial success in forex trading relies heavily on the strength of numbers. The size of your trade determines the size of your profits; hence, a $1000 trade won’t reward you as much as a $10,000 or $100,000 trade.
However, it might not be possible for you to put huge amounts of money into your forex trades due to the current economic situation.
However, forex brokers offer customers with margin accounts an amount of leverage with which they can trade forex.
Leverage on your account simply means that the forex broker will lend you money to trade – yet get to keep the profit on trade.
Hence, leverage offers you an opportunity to grow your trading capital quickly. Nonetheless, different brokers offer different levels of leverage.
For instance, a 2:1 leverage allows you to place trades worth an additional $2000, if you have a $1000 trading account. A 5:1 leverage allows you to place trades worth an additional $5000 on a $1000 trading account.
It is important that you choose a broker that offers you the kind of leverage you need for your trading strategies.
That said, new forex brokers might want to avoid using leverages on trades totally. A leverage can offer you a quick way to use borrowed funds to make some serious money.
However, if the trade doesn’t end well, you might run into serious losses and you’ll need to pay back the borrowed funds.