There are quite a few things that you have to consider when it comes to forex trading. The first thing that you need to do, is to find and choose the right forex brokers. When choosing, you need to know that there are many brokers to choose from, just as in any other market.
Here are some things that you need to look for, before making your choice:
The spread, which is calculated in pips, is the difference between the price at which a currency can be bought and the price at which it can be sold at any specific point in time. Forex brokers don't charge a commission, so this difference is how they are going to make money.
When you are comparing brokers, you will find that the difference in spreads in Forex trading is as large as the difference in commissions in the stock arena. What this means is that lower spreads will save you money and therefore, look for forex brokers that offers low spreads.
Quality of the Institution:
Unlike equity brokers, forex brokers are usually attached to large banks or lending institutions because of the large amounts of capital that is required. Also, forex brokers should be registered with the Futures Commission Merchant (FCM) as well as regulated by the Commodity Futures Trading Commission (CFTC).
You will want to make sure that your forex broker is registered and backed by a reliable institution.
Extensive Tools and Research:
Forex brokers offer many different trading platforms for their clients just like brokers in other markets do. These different trading platforms often show real-time charts, technical analysis tools, real-time news and data, and even support for the various trading systems.
Before you commit to any one broker in specific, you will need to be sure to request free trials so that you can test their different trading platforms. Brokers usually provide technical as well as fundamental commentaries, economic calendars, and other research as a means of assisting you. Basically, you will want to find a broker who will give you everything that you need to succeed.
A Variety of Leverage Options:
Leverage is a key necessity in forex trading because the price deviations (the sources of profit) are just set at mere fractions of a cent. Leverage, which is expressed as a ratio between total capitals that is available to actual capital, which is the amount of money a broker will lend you for trading.
For example, when you have a ratio of 100:1, this means that your broker would lend you $100 for every $1 of actual capital. Many brokerage firms will offer you as much as 250:1.
Of course, you need to remember that lower leverage also means lower risk of a margin call, but it also means that you will get a lower bang for your buck (and vice-versa). Basically if you have limited capital, you need to make sure that your broker offers high leverage.
If capital is not a problem, you can rest assured that any broker that has a wide variety of leverage options should suffice. A variety of options lets you vary the amount of risk you are willing to take. For example, less leverage (and therefore less risk) may be preferable if you are dealing with highly volatile (exotic) currency pairs.
Many brokers will offer you two or more types of accounts. The smallest account is known as a mini account and it requires you to trade with a minimum of maybe $300.
This offers you a high amount of leverage (which you need in order to make money with so little initial capital). The standard account allows you to trade at a variety of different leverages, but it also requires a minimum initial capital of $2,000 to get you started.
Lastly, there are premium accounts, which often require significant amounts of capital to get you started. It also lets you use different amounts of leverage and often offer additional tools and services. You will need to make sure that the broker you choose has the right leverage, tools, and services that are relevant to the amount of capital that you are able to work with.
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