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Online Forex Broker - Avoid Selecting the Wrong Broker
By John | December 17, 2009
Online forex broker is a firm that accomodate traders with online trading platform to buy or sell foreign currencies. By using these brokers services, a trader can access the 24 hours forex market. Thus, selecting the right forex broker is a very important step if you want to take part in forex global trading.
These brokers are usually compensated through the bid-ask spread of a currency pair. For example: EUR/USD bid price is 1.4613 and ask price is 1.4616. If a trader makes entry to the market at that time he can either buy at price 1.4616 (ask) or sell at price 1.4613 (bid). In this case the spread is 4616-4613=3 pips.
Different online forex broker will have different policies about the spread for each currency pair, so you must read this information first, particularly your favorite currency pairs. For widely used currency pairs like EUR/CHF, GBP/USD, or EUR/USD, it is pretty common to have low spread 2-4 pips. But other currency pairs like CAD/JPY, EUR/CAD, and CHF/JPY have higher spread of 8-17 pips.
Although most of forex brokers make their incomes through spread, there are also brokers that charge commission fee per trade in addition to their profit from spread. This commision will be charged per lot. One lot is 10,000 units of currency; for instance: 10,000 unit are the same with EUR 10,000; GBP 10,000; USD 10,000;etc.
So, do you need $10,000 in order to enter forex trading? Not anymore; the current forex trading has solve that problem with leverage system. A 200:1 leverage means that you only have to deposit 10,000 / 200 = $50 in order to trade 10,000 units or one lot. Basically, a forex broker that ask for fees per lot will make you lose that much for each trade.
When you decide to use an online forex broker, you will gain access to their online trading platform. You can get live chart, price movement, news, and various other functions to support your trading activities such as execute orders and put trailing stop from these platforms.
Based from various testimonials, not every trader can get used to a particular trading platform, so it is a good idea to test it first in a demo account for at least a week or so. I suggest you try a few trading platforms at once and see which one fit you the best. Remember to pay attention to how quick the platform executes your order.
Create a demo account also has other merit. If you are an experienced trader and have certain strategies, you might want to test if the platform supports it or not; for example: hedging.
Hedge a trade is have buy and sell trades in the same currency open simultaneously. It can be used by a trader to lock his loss position.
Example: a trader buy EUR at 1.4815, then the price dropped to 1.4785. Instead of closing the lose trade, he sell EUR for 1.4785 and thus lock the loss at 30 pips. Then he waits the market movements and hopes to avoid loss by closing the two positions at the right price. This is quite high risk strategy, so usually a trader will choose stop loss instead.
However, if you are a novice and still learning, I suggest to check eToro Review; they have very unique trading platform and system that designed to support anyone who are still learning to get better understanding of forex trading.
So here are what to check on an online forex broker:
1. How they gain their compensation; is it through spread? Is it through spread and commission fees? Check the spread for your preferable currency pairs and if they charge commission, check the commission rate per lot.
2. Check the trading platform; make sure it suit you, provide various resources for your trading, execute order quickly, and doesn’t go down too often.
3. In case you have certain strategy that not usual, ask the customer support if their trading platform allows it or not.
4. If you are a forex robot user, check via live chat or email to make sure that they allow it. You can do this quickly by utilizing the live chat feature. There are some very good robots at the market currently and you may decide to use one of them someday, so I suggest you take the one that allows it.
Selecting the right online forex broker doesn’t has to be a complicated process; just test their platform and use the live chat feature to ask the rest of the questions. If you are a forex robot user or have plan to use it in the future, I suggest you to read 4XP Review as it is one of credible forex broker that allows forex robot.
Topics: Forex |
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