Choosing The Best Forex Broker

If you wish to start trading forex, you will have to register and open an account with a licensed Forex Brokerage firm and then deposit the amount you want to use in your trading account. Once you have completed the depositing process, you are ready to begin trading.

Since there are many trading arenas a person can choose to start trading in, making a proper choice through careful evaluation is necessary.

Simplicity
Online Forex trading has low barriers to entry, making it easily accessible to all traders with internet access. Traders can access the market 24 hours a day, from their desktop and mobile device.

Flexibility
With online trading, you are not limited to one market. You can trade Forex, indices and commodities. It’s all available to you within the style of trading you choose to adopt.

Transparency
In Online trading you may expect some surprises. You can calculate how much you can loose and how much you can make, even though sometimes profits and losses can exceed expectations.

How are currencies traded in the Forex market?
In the currency market, currencies are traded in pairs. It is important to note that a currency pair is made up of the base currency and the quote currency or the counter currency. For example, the quotation EUR/USD, EUR is the base currency whereas the USD is the quote currency. The currency pair points out the amount of the quote currency needed to buy one unit of the base currency. As an example, if EUR/USD is trading at 1.3900, then it means that you’ll need 1.3900 dollars to purchase 1 euro.

Thus, the quote currency is what gives your profits or losses for each transaction you engage in while trading in the foreign exchange market.

So, what are pips?
Pips are the units of calculation used by Forex traders to calculate the profit or loss from the trades they make. If you look at any currency quote starting from the left and count 4 places, then the 4th place is the pips value in a quote. For example, when a currency pair moves from a value of 1.4022 to 1.4026, then it has moved by 4 pips. And, when a pip has a value of $10, then the profit is $40. To calculate the value of pips, traders usually use the following pips formula:

• The asking price for the currency trade
  
• Divided by 1 pip
  
• Multiplied by the value of the trade
  
• The result of this gives the value of the number of pips gained or lost in a trade.
  

What is bidirectional trading?

In the foreign exchange market, there are always two currencies being traded. One currency is bought while the other is simultaneously being sold. For one currency to rise in value, then the other currency must fall in value. As a result, either the base currency or the quote currency will always be rising in value, which means there is always the possibility to profit/lose.

If the base currency is falling in value, then it means that the quote currency is strengthening. Thus, bidirectional trading in the Forex market enables you to place trades regardless of the direction of the market.



Leverage

Leverage is a common practice in currency trading, and allows traders to greatly magnify the speed and impact of the trades they place. Leverage is what has transformed Forex from just another form of trading to a highly exciting but also highly volatile activity.

It is of essence to note that leverage is a double-edged sword. This means that you can magnify both the profits potential and loss potential of your trades. For example, if a trader opens a trade with a margin of $50 and a leverage of 200 times, then it means that the actual trade value will be 50 x 200 or $10,000. If the trader records a gain, the profit will be 200 times greater than it would otherwise have been. On the other hand, if the trader experiences a loss, then the loss will be 200 times more than it would otherwise have been.

Because leverage can have such a dramatic impact on your trading, it is very important to set clear limits and targets for your trades in order to reduce the risk of a meltdown in your account.

Trade model
Let’s say you want to open a trade on EUR/USD. You think the market will rise, and the EUR will strengthen, so you decide to buy the EUR/USD. The rate is 1.4000 and you are willing to invest $100 from your account.

You decide on a leverage of 100 times. Thus, the amount of the trade will be $10,000. Your margin is 1%, that means that if the value of the pair drops by 1% then you will lose your trade margin and your trade will be closed.

However, if the markets go in the direction you expected, then on a gain of 1% you will profit by $100. You can then close the deal and bank the $100 you earned and the $100 you invested.



How does one carry out analysis of the market?
There are two main ways of undertaking market analysis: technical analysis and fundamental analysis, you will learn about both of them in the next lesson.

Apparently, buy low and sell high is the trick here! The prices of currencies in the foreign exchange market often fluctuate; that is, rise and fall. As such, the profit/loss potential comes from these changes in currency prices.

Online trading cuts out the need for intermediaries (such as banks). And, yes, it can be a very rewarding experience. But like any other business, you must be properly prepared. The most important preparation you must do for your trading business is get the proper training.

The first and most important step a trader needs to take is to find a forex broker they can trust. In this industry, brokers are an integral part of the trading equation and they are a trader's prime business partner, so a trader's aim should be to find the best forex broker available. Choosing a suitable and reliable broker is vital, as is choosing one that will meet your individual needs as a trader. In order to make an informed decision, there are some key factors every trader should take into consideration.

Regulated Forex Broker
This one may sound a little obvious, but you'd be surprised at how many unregulated forex brokers there are. The best forex brokers are regulated and supervised by a local or international authority. Without regulations, forex brokers can do as they please and this may result in some very unpleasant issues for you as a trader. Be safe and go with a broker that you can trust. Adhering to rules and standards is the only definite sign that a broker takes trading very seriously.

Low Spreads
So what exactly is spread? If you take the bid price and the ask price of a currency pair or other asset and you calculate the difference between the two, that is the spread. If the spreads offered by a forex broker are high, this signals a red flag. Many brokers make a profit at your expense from high spreads, so opt for a forex broker with low spreads.



High Leverage
The simplest way to explain leverage; it gives the trader the ability to trade larger amounts of currency with a smaller deposit amount, therefore increasing the trader's buying power. Leverage is presented in ratio form; 1:1000 for example means that your buying power is increased by 1000 times. Deposit €1000 and the broker will match it to make it €1,000,000. High leverage essentially gives opportunities to traders that they would not have had otherwise. Small traders with little capital can take advantage of high leverage to maximize their profits. Just as profits can be maximized however, so can losses, so leverage must be handled with care and must not be used continuously, especially by those who do not need it.



Fast execution
When trading in a fast paced market like the forex market, it is crucial that you choose a broker that can execute your trades in a fast and efficient manner. Delays in execution can only cause problems.
Choice of Different Account Types

A variety of account types to choose from is always a plus. Each trader differs from the next and if a broker offers a wide range of account types it means they can cater to different traders' financial abilities, needs and aspirations. The best forex brokers will recognize that the power of choice goes a long way; traders respond well to freedom, not limitations.

Demo Accounts
Trading with a demo account before trading with a live account is crucial. If a forex broker doesn't offer demo accounts, run in the other direction. By trading with a demo account you can trade with real conditions but virtual money, so it is absolutely risk free. This is the best way to get to know the ins and outs of trading and to put your trading strategy to the test. You can discover your strengths and weaknesses as a trader and embark on live trading only when you are confident and ready.



Variety of Trading Instruments
As mentioned before, traders don't respond well to limitations. The more trading instruments a forex broker offers, the more opportunities are unveiled. Choose a broker that doesn't just offer the Major currency pairs but also the Minors, the Exotics, precious metals and other commodities. Gold for example is a very popular trading instrument during times of economic and political instability.

Reliable Trading Platforms
The best forex broker will offer the best trading platforms. A reliable platform will offer you quick access to technical and fundamental analysis, an excellent security system, automated trading, visual features like graphs and charts and should always be user friendly. The market standard is the sophisticated MetaTrader 4.

Automated Trading
Automated trading, or algorithmic trading, puts the trader at a great advantage. A trader can implement his strategy or adopt another trader's strategy and from then on, some trading platforms contain software that automatically executes trades for you based on the strategy you have developed or adopted. A good example is Expert Advisors on the MetaTrader 4 trading platform. The advantage of automated trading is that you do not have to be glued to your monitor all day, waiting for an opportunity to arise. Opportunities will be caught for you by the automated trading system. Keep in mind however that such systems function according to the strategy you have developed or adopted, so the risk that they can create losses as well as profits is always present.

Deposits and Withdrawals
For your benefit and convenience, it is important to choose a forex broker that offers quick and easy deposits and withdrawals. Quick deposits help you support your trading position and take advantage of opportunities that may arise suddenly in the market. In the case that you need to withdraw your funds for whatever reason, the withdrawal process should also be fast and simple so your funds can be returned to you in no more than a few working days.