Reviews of a brokerage by its clients will tell you a lot about the company. Due to the 24/5 nature of Forex you want to find a brokerage that will assist you whenever you need it. A good brokerage will have support available at any time. Speaking live and direct with a person can be far more productive than dealing with an automated response. Making sure that the brokerage is easy to deal with and are happy to assist you with any problems you may have is important. Generally, a call to the brokerage will give you an idea of the way a company will handle client queries. Wait times, and the representatives ability to answer questions regarding company details, are things that should be considered.
Usually, a brokerage will offer a variety of account types, suitable for different traders depending on how often you trade, how much you trade, etc. Finding one that suits your needs is important, as you wont want to be restricted, nor will you want to be paying for more than you need.
Leverage: Forex Brokerages will offer their clients leverage to help them make the most of their capital. Currency pairs move in very small increments and therefore large position sizes must be taken to make trading worthwhile. Brokerages offer anywhere from 1:1 to over 1:500, allowing you to take larger positions with a smaller deposit in your account. Leverage of say 1:500 will allow you to purchase $500 worth of currency while only using $1 out of your account. This gives you 500 times as much profit and loss and must be used very carefully.
Margin: Margin relates to the amount of money that must remain in your account to keep your position(s) open. Having a larger margin will ensure more safety for both you and the brokerage. It is very important to maintain a high level of risk management, and an independent financial advisor should be consulted if you are unsure about your investment strategy.
Commissions and spreads: Each broker will set different rates for commissions and spreads, depending on things like liquidity and how often the currency pair is traded. Spreads generally widen with currency pairs that are not traded as often, and major pairs usually have low spreads due to their high liquidity. Some brokerages will advertise no commissions, however, are more likely to have wider spreads. Different account types can mean different commission rates and spreads.
Deposits and Withdrawals: The first thing you will need to do is make an initial deposit. This can be as low as $1 for a micro-account, and over $2000 for more institutional level accounts. Deposits and withdrawals should be made very easy and are usually executed within a few days at the most. Make sure that there are no issues with deposits and withdrawals, this trust can come from regulations and customer reviews. There may be a small fee for each withdrawal.
There are two main types of brokerages. Dealing Desk (DD) and Straight-Through Processing (STP). They differ in the way that they execute trades. The DD will act as a market maker between the client and the Liquidity Providers(LPs). When you trade with a DD you are trading within that market rather than directly with the global market. This can cause a conflict of interest for the brokerage, as Forex is a zero-sum game when the client makes money the brokerage will lose money. An STP, on the other hand, will execute your orders directly in the global market with the brokerages LPs. This means that they can provide the best bid and ask prices based on the prices offered by their LPs. As your trades not executed within an artificial market, there is no need for the brokerage to interfere with your trades.
When placing your money in a brokerage you need to make sure that you can trust them. Regulatory bodies vary from country to country, and their standards will vary as well. Understanding the quality of the regulatory body in your country will help you to decide whether putting your money in a brokerage there is a good idea or not. Regulatory compliance is a strict process and requires constant monitoring for the brokerage, therefore those that do comply with national standards will make their regulation easy to find. A regulation from a suitable financial body will be proudly presented by a brokerage and if you cannot find any signs of one, then you should move on with your search.
The trading platform that you choose to use is your gateway to the market. As such, you need to make sure that whichever platform you choose suits your needs. Most platforms will have a variety of functions designed to help you analyse data and make decisions to help you in your trading. A clear buy and sell button is a very simple, but important tool, during trading you need to know that you can execute your orders whenever you see fit. An unnecessarily complicated interface may look impressive but can lead to costly mistakes if it is not utilised well. Another consideration is the customisability of the platform. Tuning a platform to your needs and conveniences allows you to feel comfortable when trading and can enhance your performance using Expert Advisors (EAs), trading options, alerts and strategy builders.
All investments come with a level of risk, whether you are investing in Government Bonds, the stock market or real estate. Risk in a financial context is the exposure to losses that you face when investing. Typically taking on a higher level of risk is rewarded with the potential for higher returns and determining an appropriate level of risk that suits you is an essential part of creating your investment portfolio. Whether you are an institutional level trader or simply wanting to experience the thrill of the stock market, the level of risk that you are comfortable taking will have a large impact on your portfolio management. Here are five things to consider when assessing your risk profile:
The time horizon that you have on your investment will determine a lot about the types of investments you make. If you are making an investment for your future in the form of retirement savings and you are still relatively young, you will be able to take a reduced amount of risk that will compound over many years. If, however, you need to make money in a shorter time frame, then a higher level of risk will likely be needed. A longer time horizon can also be useful to ride out any short-term market movements. There is potential for an investment to dip in value temporarily but recover in the long-run, a longer horizon will allow you to avoid these losses, whereas with a shorter-term investment you may be forced to take those losses.
Another important factor to consider is how much money you can afford to lose. This may sound pessimistic, but it is not wise to invest money that you may need at short notice. As all investments take on at least some risk you should be prepared to take some losses, should things not work out in your favour. Given you invest wisely these losses can be temporary and your investment may recover in due time. You will also want to consider how important these investments are to your future financial well-being, if the investment doesnt work out you want to know that you wont be in financial turmoil. If they are a make or break for you then a lower risk level would be more appropriate, but would likely come with a lower level of returns.
The amount of income that you will be receiving over the duration of this investment will also contribute to which type of investment you choose. You should look to be able to cover all your monthly costs and have some money left over for incidentals. This will allow you to leave your investment alone and not have to sell-off anything prematurely to cover short-term costs. Removing part of your investment will likely be very detrimental to your future gains, especially in the long-run.
Goals of an investment can range from keeping ahead of inflation to forming the basis of an income. This will consist of a dollar value that you want to aim for and a timeframe in which you want to achieve this in. Depending on your goal and timeframe, you will need to adjust the aggressiveness of your investment. Measuring the average returns per year you will need to reach your goal will give you an idea of how you will need to arrange your portfolio.
One final thing to consider is not a matter of finance, but rather a personal choice about how comfortable you feel in potentially losing money. This can be dictated by past experiences or your general temperament. Everyone will feel differently about taking on risk, and understanding how comfortable you are can help you with your investment. Remember, most people will feel losses much more harshly than the benefit they will feel from an equal amount of gains. With this in mind, it is important to know how much loss you can handle in order to pursue the potential for future gains.
Once you have an idea of the kind of risk level that you are comfortable with, you can begin to plan an outline of what kinds of investments you want to make. Completing thorough research about each of your potential investments is essential and the more of an understanding you have of your investment the better you can manage the losses and even prevent them in some cases.
Starting out on your Forex journey is very exciting, but it can all come crashing down if youre not careful. All too often new traders will fall into the same pitfalls, overestimating their ability and making decisions based less on analysis and theory and more on feeling and emotion. To make money from Forex, in the long run, requires patience, critical thinking and a keen understanding of the markets. Many people try but few succeed. Here are some reasons why your last Forex experience didnt go as well as you might have wished.
Whether you are beginning with $200 or $20,000, managing your bankroll appropriately is essential to long-term survival. Many new traders may make a successful trade and let that euphoria go to their heads. It is not uncommon to make a profit which is followed shortly by a larger loss, mitigating your progress. These losses can be very demotivating to a new trader as they can put you in a worse position than if you had never attempted to trade. However, losses need to be prepared for, it is very difficult to avoid them if not altogether impossible in the long-run. This is where a risk management strategy comes into play. Implementing a system that uses appropriate bet sizes and cuts losses quickly, while adding to your winning trades will allow you to stay afloat and hopefully make substantial returns in the long run. Of course, this is easier said than done.
Becoming emotionally invested in your trades can be very detrimental to the health of your account. As you become more invested, both financially and mentally, it is possible to become very attached to the success of your account. This does not always serve you well, ignoring analysis and theories in favour of gut feeling can be disastrous. Of course, there will be times when you go against the market and can make it work, but on the whole logic and reason will likely prevail. This can also lead to emotional decisions like throwing money into a risky trade to make back what you lost. Trading in the long-run requires discipline and sticking to your strategy (when its backed by statistics and analysis) will generally serve better than rash decision making.
Another reason why your last Forex account failed, was that you didnt commit to learning enough about Forex to make the most of it. Like anything, Forex takes time and dedication to become good at and is a skill that many people do not acquire. Learning different chart patterns, indications in the market, and how to read economic events takes a long time, but hopefully, will all pay off. When first starting out in Forex it is easy to assume that it is a way of making a quick profit, and while thats possible, it is far from the reality for most traders.
When you next set out to trade Forex in the hopes of creating a long-term cash flow or just to trade on the side, remember that it will take time. Time to get accustomed to how to trade, time to find a strategy that suits you and your needs, and time to see your account rise in value.