This can be a daunting process. Perform your due diligence as if you were going to buy a company. The following ideas might be of help:
Any forex broker worth his salt will be registered as an FCM which is a Futures Commercial Merchant with the Commodities Futures Trading Commission (CFTC). Having found a registered forex broker is but only the beginning of your search.
There are other important considerations. For instance, the broker of choice should be linked to a firm with substantial financial clout because the broker often 'lends' a trader up to 99 per cent of the funds for trading. This is because forex trades are highly leveraged.
The Federal Deposit Insurance Corporation (FDIC) does not insure forex accounts. Consequently you cannot expect the White House to assist any brokerage company or to refund you should the market go belly-up. For financial peace of mind, utilize the services of financially stable institutions with sufficient funds to absorb substantial losses because of adverse market conditions and therefore fast diminishing deposits should their client base make a run on the financial institution with large withdrawals.
In addition you want your broker to answer the phone when you call, right? Communication. Being able to reach your broker can make a big difference to your bottom line. Sometimes a substantial one. Or do you want to hear the smoky voice of a little kitten telling you he is not available because of some other considerations? Remember the forex market place is active 24 hrs worldwide so you may need to reach him after normal working hours. Your normal working hours that is unless you are trading full-time in which case it doesn't matter. It's like 'Joe pick up the bloody phone before I bitchslap you to kingdom come. The bloody market has gone south and I want my money like right NOW. I said right now, d'ya hear?''
Forex brokers use spreads which is the difference between a bid and ask price. That means what the broker pays to buy vs the amount he sells a currency for. This is different from the standard commissions charged by bond or stock brokers. This could be a fixed spread on trades or variable spread. Depending on your investor trading style or risk profile you would opt for one kind of spread versus another. Fixed spreads tend be larger though.
Qualified clients are offered a standard account upon completion of the application form and having indicated that the requisite funds for trading are at your disposal (in other words you have the booty that is going to make you a s*&^load of moolah, catch my drift?) So yadda yadda you have to state that you understand the risks yadda yadda inherent in forex trading excuse my verbosity ;) yadda yadda. So now you have a neat little standard account which trades currency in wait for it, units of 100 000. That means, Mr Wiseguy that you have to buy 100 000euros worth of currency. That's right. Holy Camoly. That's a beeyatch. I don't have that kinda money. Well what did ya think? This aint the local casino esse.
So what now? Buy lemons and make lemonade? Hold on there for a mo. Brokers know that's a sh*tload of money so they offer leverage. No I don't mean the lowdown on the ex that's gonna get you off the maintenance court's hitlist. That means you put in for instance 1 percent of the total amount, the broking firm the rest. :) Bingo home and dry. Hmm. Not quite. Remember the risk. So you have huge profit potential but the downside is that there is also a very high risk factor. The margin call policy of the broking firm is important-know what it is.
There are other solutions. For instance some brokers will indeed offer some kind of 'mini' trading account which means that trading happens in smaller units instead of standard lots, such as 1, 000 which means you, budding forex trade tycoon, get to invest say 300USD as opposed to 3000USD. That is a minimum far more reachable by most investors. If not, play the lotto quick pick 10USD a pop, no problem :) There is a downside. Regrettably trading with such a mini account does mean that the reduced leverage requirements also reduces the profit potential but hey you can't have your cake and it eat it, right? You want to trade? Play by the rules. Especially the ones that talk about affordability. Don't wipe out your life earnings and Aunt Sarah's study loan with one bad trade. Protect the investment capital. In gambling parlance protect the betting bank. Without a betting bank it's game over, thanks for playing, bye!
Okay now onto software and technical tools. You will need those preferably supplied by your broker so you can be more effective. Any kind of investing is complicated and has varying degrees of volatility attached to it, particularly forex trading. To begin with perform several paper trades using trial accounts so that you can become efficient with the software and research data available, preferably using real-time prices. Spend monopoly money on your leaning curve or blow he whole enchilada on the learning curve and make next month's investment funds selling big macs at you know where. You have been warned. Do not go past Advance do not collect 200USD at the start go straight to ... shall I continue?
Okay in the final analysis what are you looking for? A solid broker with deep pockets and that rarest of commodities, integrity and by that I don't mean he pays his monthly drinks tab at O'Hagan's down the road.
Spend as much time on this as you would a good husband or wife. After all it's your money, right?
For more information about the world of Forex visit the author's website http://www.dealsforex.com |
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