Choosing a Forex Broker
If you are checking out a broker based in the USA, make sure your broker of
choice is registered with the National Futures Association (NFA) or Commodity
Futures Trading Commission (CFTC).
Make sure your broker offers a demo platform, with reliable real time data and
charting. You cannot practice trading unless you are viewing real time data.
While Demo Trading, you should be looking at the same environment as you will be
when you are trading live. To develop a successful trading strategy, only demo
trade with the amount of capital that you really will be working with, when you
begin to trade with live capital. Know the risks and focus on a strategy with
your capital risks in mind. Determine your loss risk tolerance.
Leverage is a loan that is provided to an investor by their broker. You need to
know up front, how much or how little leverage the broker will give you.
Investors use leverage to profit from the fluctuations in exchange rates between
two different countries, when trading Forex. Leverage achievable in the Forex
market is one of the highest that investors can obtain. Standard Forex trading
is in 100,000 units of currency, the leverage provided is usually 50:1 or 100:1.
An investor with a $1,000 deposit in their margin account would have $100,000
with a 1% margin.
You need to find out if the broker offers fixed or non-fixed spreads and, how
wide are the spreads. If you are looking to profit on a few pips, large or
variable spreads can cut into your profits
When making live trades, traders must take into account, slippage. Slippage
occurs when a limit order or stop loss occurs at a worse rate than the original
order placed by the trader. Slippage often occurs during high volatility due to
numerous events thus, an order at a specific price is impossible to execute.
Most forex dealers will execute the trade at the next best price, should the
volatile market conditions prevent specific limit orders from being filled.
Dealing Desk or No Dealing Desk
Dealing Desk: Forex brokers who offer a dealing desk, the broker acts as a
market marker, setting the prices and spreads on which you trade. The broker can
see your stops and limits thus, they profit from traders trading losses. This is
true for all brokers that offer dealing desk execution.
No Dealing Desk: Forex brokers trading through a no dealing desk allow an
investor to deal with numerous providers in order to get the most competitive
bid and ask prices thus, access to instantly executable rates.