The Forex industry is rising due to Internet development and the end of bank monopoly on the currency markets.
Now almost anyone can trade currencies inasmuch as we can access the Internet on our computer or mobile device. However, a simplicity of entering the market can be deceiving and you can face some problems with starting currency trading.
What am I talking about? Well, to start online trading you need to open a trading account with an online forex broker. But if you just search “online forex broker” in Google, you’ll see more than 11 millions hits. This diversity does not help to make a decision. Fortunately, there are some factors, that will help you to make an intelligent choice.
Speed of execution
The Forex market is working all-day-long 5 days each week, there is a huge amount of different types of traders in the market at any given time. A lot of them provide the market with really high liquidity, but the liquidity often causes rapid prices changes. So, the speed of executing of your trade is very valuable. This speed is measured by a length of time between the moment when you tell your broker to execute a trade and the moment when the action is completed.
You might not be able to trade in “real time” if your brokers’ speed of execution is low. Every delay can eat into your profits or increase your losses. So, first of all, make sure, that your broker works fast.
Costs, Fees, and Commissions
The FX brokers have the same aim as we are — they want to earn money. We enter the FX market to increase our profits, and they are working in that area for the same cause. The only difference is in that fact, that they earn money on the services they provide, i.e. offering you a trading platform or a trading software.
The bid price and the ask price divergence, which brokers quote on currency pairs, people are calling “spread”, and brokers earn on it. On the platforms of different brokers the same currency pair could have not similar bid and ask prices.
Finding a broker with competitive spreads is a very important task for you. It is in your best interest also because it could help your bottom line to figure out if the spreads are fixed or not so that you can avoid bad surprises down the road.
Commissions are other income item of Forex brokers. They usually charge a commissions per every trade. We advise you to choose a broker with a commission corresponding to your trading strategy. For example, if you are an aggressive day trader or a forex scalp trader, the brokers with a high commission are not for you, as that commissions could eat a huge percent of your profits.
There are also another types of fees you can meet on the forex brokers market. For example, annual account fee, a fee if you don’t maintain a minimum account balance, a fee if you place a minimum amount of trades in a month. But not all brokers work with extra fees. Some of them vice versa will reward you with a matched funded trading account for anyone of your choice when you open an account.
So, you need to make a great research in this area and find that broker, which will propose you the best conditions.
Leverage on Account
Numbers are everything in FX trading, because the size of your trade defines your profit value. Consequently, you’ll get more money from $20.000 or $200.000 trades, than from a $2.000 trade. On the other hand, not all have the opportunity to invest in the trading a large amount of money. Successfully, FX brokers often offer clients with margin accounts an amount of leverage, which can better the situation.
What is Leverage? Simply it means, that a broker lend you money to trade and have a possibility to earn more money. This leverage help people operate a great amounts and, as a result, to have a great profit. It is quite logical, that different brokers offer different leverage amounts.
Let’s look at an example. A broker gives you a leverage 3:1, so you can operate $3000 instead of $1000 you have invested. Another broker gives you a leverage 5:1 and you can operate $5000 instead of $1000 you have invested. Which one to choose? It depends on your chosen strategy.
There are also some brokers, that don’t use leverages on trades at all. And they have some reasons. On the one hand, leverage can bring you the bigger profit, than you could expected using your own fund. On the other hand, it can bring you the same huge losses, because you’ll need to pay back the borrowed funds.