If you are new and just starting out as a Forex trader or considering doing Forex trading, working with a reputable and trusted broker is of good advantage for you though it may be very risky, sometimes. The Forex Market is very competitive and the largest financial market globally. Finding the best broker that fits your needs among the very large pool of Forex brokers requires a very thorough analysis, time and research. Going through a list of advertisements, online magazines, online Forex brokerage and etc is time-consuming indeed, but once you've got the best fit, it’s all worth it.
Every day, the average trading value in the foreign exchange market is more than $4 trillion globally. Traders need to choose their Forex broker to help them with their trading transactions. There are a large array and continuously growing number of Forex brokers out there. They all offer competitive services and choosing the right one can be very confusing especially because of their overwhelming advertisements. You have to be cautious and take time to dig in as patiently as possible.
In choosing the best Forex Broker, you must learn and understand what Forex is all about. Forex or Foreign Exchange is the global market for currency trading where you can buy, sell and trade different currencies. You can also sell a currency while buying one and this is what you called a currency pair. The base is what you call the first currency and quote or counter is the second. Your profit or loss sits in the difference in price between the currencies. If the currency you have bought increases in value against the currency you have sold, you can close your position for a profit but if the situation is the opposite then you lose.
The exchange rate can rapidly change multiple times in a second and your decision is the biggest factor in gaining or losing your profits. You should always trade carefully and consider all the risks involved.
In able to buy and sell different currencies, traders will need a Forex broker to provide them access to a trading platform so they can do transactions. Depending on your deal, the brokers can be compensated in two ways - either charging a fee per transaction or the bid-ask spread of currency pair. Lately, the Forex broker competition increased which is why most brokers offer almost free or if paid, a very small amount of fee only. When you’re in the platform, you’ll see this term which they always use. “Ask Price” is the in which you can buy, and is always higher than the Bid Price. The “Bid Price” is the price that you can see and is lower than the asking price.
Trade in progress is termed as “position”. A long position means a trader has bought currency expecting the value to increase and when the trader sells that currency back to the market for a higher price than what he paid his long position is said to be closed and the trade is complete. Whereas, a short position means a trader sells a currency expecting it to decrease, and plans to buy it back at a lower value and when the trader buys the asset, the short position is closed.
Retail traders, corporations, banks, and central banks are the ones that largely trade in the Forex trade industry. The central banks will directly influence currency movements by their decisions to strike a balance between inflation rates, steady economic growth, and relative currency stability through controlling and influencing the money supply.
Banks may be smaller than the central bank but there are more than a hundred banks participating in the Forex market. No matter how big or small a bank is it would still affect the Forex market as they come in numbers.
Forex rates are used by many companies to value assets, liabilities and more ending in a market manipulation where it affects businesses and realize their orders are not treated fairly, valuations off and trades disrupted.
Retail traders or individual traders combined have an extremely low Forex trade compared to big companies but they still make an impact in the trading industry as retail trading is growing in popularity.
Knowing the types of brokers and choosing the right one will surely make your trade more profitable.
Dealing Desk brokers are also called “Market Maker” as they literally are always there ready to make a two-sided market for any financial marketing tool and quote bids and ask prices to the traders. They may choose higher or lower actual market prices any time depending on the market. But they normally offer fixed spreads because they do not pass trades to the liquidity providers which can easily and readily buy and sell your assets. Market makers are always the counterparty of the trader, who don't trade directly with the liquidity providers and they usually take the opposite trades of their clients prior to covering themselves or not with regards to the liquidity providers and get paid through the spreads.
A No Dealing Desk Forex broker do not pass their clients order through a dealing desk but instead provides direct access to the interbank market. Trading can be easy and fast in NDD as it does not require any price quotations and offered at a low price, thus, making your spread increase in value when there’s an increase in volatility during a major economic announcement.
It is directly processed on the interbank market and without any interference from a broker. Transactions are smooth and accurate and so many companies use this kind of process. Transactions can be processed all throughout different points and so it is more convenient and effective.
It is an electronic system that facilitates the trading of financial products outside the market and is governed by the Securities and Exchange Commission. It eliminates the necessity of a third party in executing transactions between the trader and a brokerage.
A multilateral trading facility (MTF) is operated by a regulated market operator that facilitate the buying and selling of financial instruments between multiple parties according to non-discretionary rules.
Sometimes the word ‘best’ seems too impossible to find in a broker. But how do we distinguish who the best broker is? Always settle with brokers who have a good reputation and great work track record. Legitimate brokers abide by the trading regulatory rules.
Some Forex Brokers would allow their clients to test the platform to get a good understanding of what the system or trading platform is like. Testing the Broker’s platform lets the clients have the feel of how the trading works and how efficient the Broker is.
Always make sure that the platform has everything, if not, most that you need, should be user-friendly and should have all the trading tools you need. The platform must have these three very important buttons: clear ‘buy’ button, ‘sell’ buttons, and a “panic” button that would automatically close all open positions to prevent costly order entry mistakes.
This is the most important characteristic thing that a broker should offer you. Of course, you would not want to hand your money to someone without knowing his background. Fortunately, there are regulatory agencies all over the world that list credible Brokers.
Some brokers offer their services with minimal transaction costs. In every trade that you make corresponds to a Broker’s commission so always make sure to look for the most affordable but credible broker.
Forex trading happens 24 hours a day, and so it is very important that the broker offers 24/7 customer support to assist customers inquiry. Always make sure that the broker has this service so that the trading flow would be more smooth and efficient.
Brokers will be your forefront in trading. Forex brokers should allow you to deposit and withdraw your funds conveniently...
Most trades happen on the Broker’s trading platform to ensure that the platform is secure and user-friendly.
As the saying goes, “Invest only on what you can afford to lose.” Trading is not an easy ‘business’. There are a lot of risks associated with trading.
Trading on margin and using leverage can increase your returns and allow your account to profit more, however, this should be used very carefully as there would still be a tendency to lose more than what you have originally invested.
Trading on margin has inherent risks and is not suitable to everyone. It pays to be cautious, sometimes.
This risk affects the profitability not only the investors, entrepreneurs, huge corporations but even the small financial institutions and every single individual as well.
Political instability results in the volatility of exchange rates and could affect the financial market tremendously. Moments of political instability and uncertainty within a country usually leads to greater volatility in their exchange rate. Trading requires knowledge on some current events as this could impact your trading strategies and propositions.
This is always being looked at as it is the major component of Forex risk. It is the result of the fluctuating interest rate.
This is often called ‘currency risk’ and it is the risk associated with the change in investment value due to changes in the value of two different currencies
Volatility is the amount of uncertainty associated with the degree of changes in a currency exchange rate. High volatility means that the price of the currency can change drastically over a short period of time and while in lower volatility, the exchange rate will not fluctuate dramatically rather would change in value at a steady pace over a period of time.
Some Brokers are not regulated so always take time to check the list of agencies for regulated Brokers worldwide. Also, some are not quite knowledgeable about trading aspects so would result in the loss of your funds.
Finding the Broker that suits your trading preference can be very time-consuming. There are many Forex Brokers out there and choosing which one to go with can be very daunting.
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