The foreign exchange market (forex) is one of the most exciting, fast-paced markets around. Until recently, forex trading in the currency market had been the domain of large financial institutions, corporations, central banks, hedge funds and extremely wealthy individuals. The emergence of the internet has changed all of this, and now it is possible for average investors to buy and sell currencies easily with the click of a mouse through online brokerage accounts. Finding the best forex trading platform involves doing as much research as possible.
Daily currency fluctuations are usually very small. Most currency pairs move less than one cent per day, representing a less than 1% change in the value of the currency. This makes foreign exchange one of the least volatile financial markets around. Therefore, many currency speculators rely on the availability of enormous leverage to increase the value of potential movements. In the retail forex market, leverage can be as much as 250:1. Higher leverage can be extremely risky, but because of round-the-clock trading and deep liquidity, foreign exchange brokers have been able to make high leverage an industry standard in order to make the movements meaningful for currency traders.
Extreme liquidity and the availability of high leverage have helped to spur the market’s rapid growth and made it the ideal place for many traders. Positions can be opened and closed within minutes or can be held for months. Currency prices are based on objective considerations of supply and demand and cannot be manipulated easily because the size of the market does not allow even the largest players, such as central banks, to move prices at will. The forex market provides plenty of opportunity for investors. However, in order to be successful, a currency trader has to understand the basics behind currency movements.
If you are considering currency trading, you should be an experienced trader who can handle financial losses. Because of the risk, forex trading is not suitable for most investors. If you have been an active day trader, you likely have the skill set to use forex successfully, or at least have an understanding of the risk involved.
On the other hand, the forex market is now more welcoming than ever to newer, lower-volume investors. While volume investors fuel the majority of the $4 trillion dollar-per-day market, lower-volume investors have increasing opportunities, too. In the past, minimum deposits were in the thousands; now you can fund a new account with as little as $100. With this low deposit requirement, you can test out a few services without risking large sums of money.
If you’re trading from the United States, Alpari is recommended due to its low commission rate and easy online trades, or MB Trading, which offers commission-free accounts. Traders based elsewhere in the world may want to investigate Dukascopy, a Swiss institution with a good reputation for transparency.
Forex Brokers: What to Look For
Some forex brokers are lowering the barriers to entry by allowing you to open forex accounts with as little as $100, whereas in the past, minimum deposits were in the thousands of dollars. In terms of available pairs of currencies, even though the majority of forex trades involve just a handful of currency pairs, most forex brokerages offer from 30 to 60 pairs of currencies. So you if you are interested in a fairly rare pairing, confirm that it is available through the forex broker that you are considering. Be aware that the minimum trade lot size is 1,000 for most forex brokers, which means that your currency pair transaction must be for at least 1,000 of whatever currency pair you are buying or selling. Some brokers require you to trade in lot sizes of 10,000.
If you trade in the United States, the law of the land protects you from yourself by limiting your ability to leverage trades to 50 to one. (Leverage is money that you borrow from the broker in order to conduct larger transactions than your actual funds would allow. With a leverage of 50:1, you can conduct a $50 transaction with $1.) In Europe, you can leverage up to 400:1. Just remember that, although leverage multiplies your ability to make profits, it is a two-edged sword so it can also multiply the speed with which you lose money.
- Brokerage & Funding Options
When selecting a broker, you have a choice of two types: a market maker or an Electronic Communications Network (ECN) broker. Each charges you in a different manner. Market-maker brokers take a percentage of the spread in value between the buying and selling price. Because that spread constantly varies, some nefarious market makers have been known to manipulate spreads artificially for their own gain. ECN brokers usually just charge a commission per transaction, and so have no incentive to game the bid-ask spread. Be sure to read all fine print and contract details before opening a new account, so you know what kind of broker you’re dealing with. Also, be careful to note which governing agencies the broker is regulated and licensed by.
Before selecting a new broker, you should consider funding and payment options, along with all associated fees and interest charges. In our research, we found that withdrawing money from an account was trickier than depositing money into the account. Since it may take days or longer to retrieve your funds, you should not trade with money that you actually need in the short-term.
If you are a day trader, you do not have to worry about interest rates because you won’t be holding funds overnight. However, if you hold a position overnight, the broker will charge you interest. Since Islamic law prohibits interest, most brokers offer interest-free accounts for Muslims; these accounts charge a fee rather than interest. Brokers may charge other fees, including wire-transfer fees, margin rates and routing fees.
Most forex brokers use the MetaTrader platform with their clients, a popular trading platform that an experienced trader will likely already know well. You’ll likely have access to MetaTrader both on the web and via mobile. All platforms are now web-based, although many brokers offer their own proprietary trading platforms as well. (http://forex-brokers-review.toptenreviews.com)