Before engaging in Forex trading, you should carefully examine the environment. The risks and money can be very high and therefore should not be neglected. Not all investments are profitable; similarly, not all investors are suited to the Forex market. If you are uncertain, you can ask for the advice or help of a Forex broker.
Numerous Forex brokers are available in the market and a careful selection must be made. Intensive research should be done to have knowledge of the reputation and experience of the broker. These two factors are great points to get a good Forex broker. Here are some of the other things that should be looked upon when selecting a broker:
• Most Forex brokers are connected to large lending or bank institutions. Look for the quality of the institution a broker is tied to. The quality of the institution can represent the credibility of the brokers.
• Brokers should be registered under FCM or Future Commission Merchant which is involved in the acceptance or solicitation of orders and future delivery through contract markets.
• Spread is the difference between the selling price and buying price of a currency. Spreads are calculated in pips. Brokers make money through spreads so in simple terms, the greater the spread, the greater the spread a broker can gain. When all else is equal go for the broker who has low spreads.
• Leverage is the sum of money a broker is willing to lend you for trading. It is expressed as ratio between your actual capital and the sum of capital available. For example, the ratio 200:2 means that a broker will lend you $200 for every $2 actual capital. Leverage is important in Forex trading and in any trading.
• Forex brokers offer various trading packages or as often called in the trading market, trading “platforms”. Trading platforms can be composed of technical analysis, real time news, technical charts, economic calendars and data for trading systems. Request a free trial of these platforms to have a better grasp of their trading processes.
• The types of accounts each broker carry are also important factors in choosing a reliable Forex broker. They can have mini, standard or premium accounts that require different amount of capital.
Currency Pairs Primer
Before you enter your first trade, learn about currency pairs and what they signify.
In the Forex market, currencies always trade in pairs. When you exchange US dollars for euros, there are two currencies involved. For every foreign exchange transaction, you must exchange one currency for another. This is why the forex market uses currency pairs, so you can see the cost of one currency relative to another. The EUR/USD price, for example, lets you know how many US dollars (USD) it takes to buy one euro (EUR).
The Forex market uses symbols to designate specific currency pairs. The euro is symbolized by EUR, the US dollar is USD, and so the euro/U.S. dollar pair is shown as EUR/USD. Other commonly-traded currency symbols: Australian dollar=AUD, British pound=GBP, Swiss franc=CHF, Canadian dollar=CAD, New Zealand dollar=NZD, and Japanese yen=JPY.
Each forex pair, EUR/USD, AUD/USD, or USD/JPY for example, will have a market price associated with it. The price refers to how much of the second currency it takes to buy one unit of the first currency. If the price of the EUR/USD currency pair is 1.3635, this means that it costs 1.3635 US dollars to buy one euro.
Also don’t be overly concerned with leverage because it can be a double-edge sword. Remember to asks lots of questions and compare the answers with other brokers you are checking out. Take your time in choosing a Forex broker that you feel comfortable with and it will pay off for you in the long run.