Wednesday, November 26, 2008

How to Choose the Perfect Forex Broker

In case you are unaware of how forex transactions are handled within the forex market, they are charged based on the currency pair’s spread. The spread can be measured in pips and is the main difference between the two prices at which the currency is bought and sold. In a currency, one pip is considered to be the smallest increment. One example would be if you were trading in the currencies EUR/USD or Euros and United States dollar, a transition from 0.6004 on to .6005 would be considered on pip. In the event that you are trading the currencies USD/JPY or United States dollars for the Japanese Yen, a transition from 112.43 on to 112.44 would be considered one pip.

One way that you are able to compare forex brokers is based on the actual spread that they are charging. Most of the dealers will issue delayed or live prices on all of their sites. However, as a forex trader, you should be aware, that you are going to need to check to see whether or not the spread is variable or fixed. At the time that the forex market is calm, the variable spreads are going to be small, however when the forex market gets a lot more volatile foreign exchange brokers, it could increase the spread. This scenario’s result is that the forex trader’s transaction costs are going to be smaller within forex market conditions that are less volatile.

Due to the very large quantities of money that is involved in forex market trading, most of the forex brokers are going to be associated with large lending institutions or banks. All forex brokers are required to register with the FCM or Futures Commission Merchant. Foreign exchange brokers are also regulated by the CFTC or Commodity Futures Trading Commission. One of the newest developments within the foreign exchange market is the online foreign exchange brokers that offer different trading facilities to forex traders by using sophisticated technology. All of these facilities allow anyone that has a personal computer and an internet connection the ability to trade within the foreign exchange market.

Commission Fees: Today, most of the foreign exchange brokers don’t charge any commissions. All of their income comes from all of their activities being a currency dealer and forex brokers earn money from purchasing, selling, holding and converting currencies, interest on deposits and rollover fees.

There are several people that are attracted by the main fact that foreign exchange brokers don’t charge any commissions. The foreign exchange broker mostly earns his money from the currency pair’s spread. One example would be a forex broker selling buy at 1.1990 but will in turn sell at 1.1985. The forex broker is able to make his profits from the .0005 difference.

Support System: When you are going to be trading within the forex market, you need to have a forex broker that is going to offer you twenty four hour support, based on the fact, that you are going to be dealing with someone that is completely on the other side of the world and has a twelve hour time difference present between the two different time zones.

Tags: forex transactions, spread, pip, forex brokers, FCM, CFTC, foreign exchange market

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