Online Forex Broker - Don't Take The Wrong Choice
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Online forex broker is a company that help traders by provide trading platform where they can buy or sell various currencies. By using these brokers services, a trader can access the 24 hours forex market. In this manner, picking the right broker becomes very vital phase if you want to participate in forex global trading.
By standard, these brokers are gain money through the difference between buy and sell price. For example: EUR/USD bid price is 1.4613 and ask price is 1.4616. If a trader makes entry to the market at this point he can either buy at price 1.4616 (ask) or sell at price 1.4613 (bid). In this instance 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.
Even though most of forex brokers make their incomes through spread, there are also brokers that charge commission fee per trade. This fee is charged per lot. One lot equal to 10,000 units of currency; for example: 10,000 units are equal to USD 10,000; EUR 10,000; GBP 10,000; etc.
So, do you really 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 need to deposit 10,000 / 200 = $50 in order to trade 10,000 units or one lot. Basically, a forex broker that ask for $40 fees per lot will make you lose that much for each trade.
When you decide to use an online forex broker, you will get access to their online trading platform. These platform will give you access to live price, chart, news, put take profit or stop loss order, execute a trade, and various other resources to support your everyday trading.
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. It is advisable to test a few trading platforms at once and see which one suit you the best. Remember to pay attention to how quick the platform executes your order.
Opening a practice account has other uses too. If you are a skilled trader and have certain strategies, you should 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 and see 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.
So here are what to check on an online forex broker:
1. How the brokers earn their money; is it through the difference between buy and sell price? Is it through spread and commission fees? Confirm 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. If you have particular strategies that not commonly used, check if the trading platform supports the strategies or not.
4. If you are planning to use Forex Robot, ask them first whether they allow forex robot or not. You can do this easily by utilizing the live chat feature. There are several excellent robots at the market currently and you may decide to utilize one of them someday, so I suggest you take the one that permits it.
5. Check if they are regulated under an official financial authority such as NFA or FSA.
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.
Article Source: Articlelogy.com
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