» Foreign Exchange
» Broker Policies
Before selecting an online Forex broker, you should closely examine their features and policies. These include:
Available Currency Pairs:
You should confirm that the prospective broker offers, at minimum, the seven major currencies (AUD, CAD, CHF, EUR, GBP, JPY, and USD).
Transaction costs are calculated in pips. The lower the number of pips required per trade by the broker, the greater the profit that the trader makes. Comparing pip spreads of half dozen brokers will reveal different transaction costs. For example, the bid/ask spread for EUR/USD is usually 3 pips, but if you can find 2 pips, thatís even better.
The lower the margin requirement (meaning the higher the leverage), the greater the potential for higher profits and losses. Margin percentages vary from .25% and up. Low margin requirements are great when your trades are good, but not so great when you are wrong. Be realistic about margins and remember that they swing both ways.
Minimum Trading Size Requirement:
The size of one lot may differ from broker to broker, spanning 1,000, 10,000, and 100,000 units. A lot consisting of 100,000 units is called a ďstandardĒ lot. A lot consisting of 10,000 units is called a ďminiĒ lot. A lot consisting of 1,000 units is called a ďmicroĒ lot. Some brokers even offer fractional unit sizes (called odd lots) which allow you create your own unit size.
Rollover charges are determined by the difference between the interest rate of the country of the base currency and the interest rates of the other country. The greater the interest rate differential between the two currencies in the currency pair, the greater the rollover charge will be. For example, when trading GBP/USD, if the British pound has the greater interest differential with the U.S. dollar, then the rollover charge for holding British pound positions would be the most expensive. On the other hand, if the Swiss Franc were to have the smallest interest differential to the U.S. dollar, then overnight charges for USD/CHF would be the least expensive of the currency pairs.
Margin Account Interest Rate:
Most brokers pay interest on a traderís margin account. The interest rates normally fluctuate with the prevailing national rates. If you decide to take an extended break from trading, the money in your margin account will be accruing interest. Keep in mind that most brokers DO NOT allow you to accrue interest unless your margin requirement is at least 2% (50:1).
Nearly all brokers align their hours of operation to coincide with the hours of operation of the global Forex market: 5:00 pm EST Sunday through 4:00 pm EST Friday.
Be sure to scrutinize a prospective brokerís ďfine printĒ section to be fully aware of all the nuances that a specific broker may impose on a new trader.
Finding the right broker is a critical part of the process. Itís not easy and requires some real work on your part. Donít pick the first one that looks good to you. Keep looking and trying different demo accounts.
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