The Best Forex Broker
Success in any venture is a simple two step formula - gathering as much information that you can and then implementing it properly. It is the same with forex trading except for the fact that it also requires you to find the best forex broker. The right choice can prove to be of great help in the learning process as well as in successful implementation of trading strategies.
There are more forex brokers on the World Wide Web than you would like to believe. The reality is that you have just to show your interest in forex trading and within a matter of days your inbox will be full of promotional material offering you attractive bonuses. A free bonus or a gift is a good thing and sometimes difficult to ignore, but that should not be the only reason for selecting a forex broker. If you value your money, you would do well to do your research before deciding the best forex broker that suits your needs.
The right way of choosing the best forex broker is to visit a review site like TheBestBrokerForex.com, which posts unbiased and honest reviews of some of the best forex brokers. However, you still need to know what to look for.
Forex trading is not easy. You need a fair amount of learning. Even after you complete the training process and are ready to start trading, you still need some practice in a real market-like environment. This is crucial because there is a lot of difference between theoretical knowledge and the real thing. Sometime on seeing good profits on a trade you tend to forget whatever you learned because your emotions got the better of you and you do not exit the trade with a profit. In forex trading it does not take long for a winning trade to turn into a losing one..
Here are some of the features that you need to look for if you want to choose the best forex broker.
- Registration and Regulation ; The forex market is an over-the-counter market and there is no central marketplace or an exchange through which trades are routed. You trade directly with the forex broker, who is counterparty to all trade contracts. In such a scene you naturally want your money to be in safe hands. If the forex broker is not registered with the local competent authority, he does not deserve a second look. In USA, a forex broker must be registered as a Futures Commission Merchant with the NFA (National Futures Association). In UK, the competent regulatory authority is FSA (Financial Services Authority). Both the regulatory bodies have strict compliance norms, one of which is to keep client funds in a separate account in order to ensure that it is not used by the forex broker.
- Spread ; As a general rule, forex brokers do not charge commissions or fees but that does not imply that they provide the service free of cost. Forex brokers makes their money from the trading spread, which is the difference between the buy and sell price of a currency pair. To explain, even the best forex broker will sell a currency pair at a price higher than the rate at which he will buy it. The difference represents his earning and your cost. The best forex broker has low spreads; as low as 1-2 pips for the currency majors. Barring where the Japanese Yen is involved, most exchange rates are quoted up to the fourth decimal point. In the forex market, the fourth decimal point is referred to as a pip. To a new trader a pip may appear to be an insignificant amount. The fact of the matter is that a standard tradable lot comprises of 10,000 units and a difference of a few pips can make a big difference to the value of a trade
- Leverage ; Leveraged trading is a system whereby the forex broker allows clients to place orders far in excess of their capital outlay. For example, 1:50 leverage means that you can initiate an order of the value of $50 by putting up only 1 dollar. It is a type of loan but not exactly a loan because you do not get any money in your hand. It is only meant for trading with the forex broker. The US law restricts leverage to 1:25 but outside USA some online forex brokers offer as much as 1:400 or 1:500. However, leverage should be used very cautiously. Its primary purpose is to allow traders to make a good profit in absolute terms because not everyone can afford to put up the full value of a standard lot. Whereas leverage amplifies the potential gain, it is at the risk of greater losses.
- Demo Account ; One of the major features of the best forex broker is an unlimited demo account. A demo account allows traders to practice what they have learned in a market-like environment with real time rates but with virtual money. An unlimited demo account allows you to practice whenever you want to and for as long as you want to. It is actually one of the best learning tools, not only for learning how to trade but also for getting to understand the functionalities of the trading platform.
- Trading Platform ; A forex broker is as good (or as bad) as the trading platform that he provides. A forex trading platform is a computer system for placing orders and usually comes free with a funded trading account. However, there are some brokers who charge a nominal cost, which is refunded if certain turnover conditions are met. The best forex broker has a simple and user friendly trading platform. It is a good idea to test a number of trading platforms before deciding the best forex broker for you because platforms have cluttered screens with improperly placed links leaving the user groping in the dark for finding the page s/he want to go to.
Now that you know the features of the best forex broker, it should be easy for you to find one. Make sure that you also pay attention to account opening requirements. If the broker is not regulated it is likely that he will not ask for necessary identification. This should be reason enough for you to suspect. Once you are sanguine on all the above counts, only then should you look at the bonuses and free gifts that are being offered.