When it comes to getting started in forex trading,
there are quite a few things that you have to consider. The first
thing to do is to find and choose the right broker to help you in
making your trades. Here are some things that you need to look for
in making your choice:
Low Spreads
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're comparing brokers, you'll
find that the difference in spreads in FOREX 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 a
broker that offers low spreads.
Unlike equity brokers, FOREX brokers are usually
attached to large banks or lending institutions because of the large
amounts of capital that are 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 can find this and other financial information and statistics
about a FOREX brokerage on the company’s website or the website
of its parent company. You'll want to make sure that your broker
is 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 realtime charts, technical analysis
tools, real-time news and data, and even support for the various
trading systems. Before you commit to any one broker, you'll 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'll want to find a broker
who will give you everything that you need to succeed.
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.
These aren't the only issues you should consider
when choosing a broker. I'll cover some other important factors
in a future article.
Pete Cullen runs the website
Forex Trading Basics. This article is excerpted from his Special
Report called "Your Guide to Successful Forex Trading."
For more information, please visit http://www.Forex-Trading-Basics.com
