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Online Forex Broker - Avoid Selecting The Wrong Broker
Author: Matthew Johnson
Online broker is a firm that accomodate traders with online trading platform to buy or sell foreign currencies. By using these brokers services, a trader can access the 24 hours market.
These brokers are usually compensated through the bid-ask spread of a currency pair. For example: EUR/USD bid price is 1.4613 and ask price is 1.4616. If a trader makes entry to the market at that time he can either buy at price 1.4616 (ask) or sell at price 1.4613 (bid). In this case the spread is 4616-4613=3 pips.
An online broker will apply different spread for different currencies, so make sure you check this information on their website, especially the currency pair that you have interest in. Common currency pairs such as EUR/USD, GBP/USD, or EUR/CHF usually have low spread; about 2-4 pips. But other currency pairs like CAD/JPY, EUR/CAD, and CHF/JPY have higher spread of 8-17 pips.
Although most of brokers make their incomes through spread, there are also brokers that charge commission fee per trade in addition to their profit from spread. This commision will be charged per lot. One lot is 10,000 units of currency; for instance: 10,000 unit are the same with EUR 10,000; GBP 10,000; USD 10,000;etc.
So, do you need $10,000 in order to enter trading? No; the current market is using leverage system. A 200:1 leverage means that you only have to deposit 10,000 / 200 = $50 in order to trade 10,000 units or one lot. In other words, if you use a broker that charges per lot, you will see missing from your profit each time you trade.
When you decide to use an online broker, you will gain access to their online trading platform. These platform will give you access to live price, chart, news, put take profit or stop loss order, execute a trade, and various other resources to support your everyday trading.
Based from various testimonials, not every trader can get used to a particular trading platform, so it is a good idea to test it first in a demo account for at least a week or so. I suggest you try a few trading platforms at once and see which one fit you the best. Another thing that also important is the speed of the order execution.
Create a demo account also has other merit. If you are an experienced trader and have certain strategies, you might want to test if the platform supports it or not; for example: hedging.
Hedge a trade is have buy and sell trades in the same currency open simultaneously. This method can be utilized by a trader to lock any loss trades that he has.
Example: a trader buy EUR at 1.4815, then the price dropped to 1.4785. Instead of closing the lose trade, he sell EUR for 1.4785 and thus lock the loss at 30 pips. Then he waits the market movements and hopes to avoid loss by closing the two positions at the right price. This is quite high risk strategy, so usually a trader will choose stop loss instead.
So here are what to check on an online broker:
1. How they gain their compensation; is it through spread? Is it through spread and commission fees? Check the spread for your preferable currency pairs and if they charge commission, check the commission rate per lot.
2. Check the trading platform; make sure it suit you, provide various resources for your trading, execute order quickly, and doesn?t go down too often.
3. In case you have certain strategy that not usual, ask the customer support if their trading platform allows it or not.
4. If you are planning to use Robot, ask them first whether they allow robot or not. You can do this quickly by utilizing the live chat feature. There are some very good robots at the market currently and you may decide to use one of them someday, so I suggest you take the one that allows it.
Pick the credible online broker doesn't has to be a difficult task; what you need to do is test their trading platform and ask the rest of the questions via live chat or email.
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