You Should Be Asking These 15 Questions. Your Broker ( best forex broker) should answer with certainty.
– How many years of experience do you have?
– What is the financial condition of your company? Can I see your balance sheet?
– Which banks do you have working relationships with?
– Are the rates quoted by a bank, many banks, or my broker?
– Are my spreads variable or fixed?
– How tight will the spreads be?
– Do I have the option of Fractional Pip Pricing?
– What are the restrictions on trading?
– Do I have the option of putting orders within the Spread?
– Do you allow interest to be earned Positive Rolls?
– Do you allow Positive Rolls on every margin level?
– Where can I find rollover rates displayed?
– Am I allowed to edge on this trade platform?
– Is it possible to lose more than I have in my account?
– When is Customer Service available and how helpful are they?
Is your Forex Broker right for you? Your money is one of the most important things and not something you want to mess around with. Not all Brokers are on the same level. Make sure you’re asking the right questions and keep asking until you’re satisfied. If you aren’t getting the answers you’re looking for it may be time to start looking for a different Broker.
It matters because when you’re dealing with a market that doesn’t have a unified exchange, not everyone gets the same quality of work or the same prices. Organizations with higher volumes of trade and stronger financials get better deals. Larger brokers pass these benefits – cheaper prices and better executions – on to you.
How Orders Are Executed:
Forex Brokers can quote rates in different ways:
– Dealing Desk – Your Broker sets prices and executes the orders. The Broker usually uses a fixed spread, which means the spreads end up being higher than normal variable spreads. Look for regulations about orders placed during economic or news events. This is often the perfect time for trading.
– No Dealing Desk – Several banks send competing bids to your Broker. This means your orders aren’t executed by your broke, but by the banks. These usually result in a lack of restrictions on trade done during economic or news events, but always ask your Broker.
Fractional Pip Pricing
The majority of currency pairs quote to the fourth decimal place; a pip normally equals .0001 – this is called one basis point. Brokers usually round to the next pip (up or down), though a few give Fractional Pip-Pricing which adds an extra decimal place, making spreads more accurate and tighter.
Scalping the Market
Traders often prefer scalping strategies, which means placing orders within the spread. Scalping is only profitable if the market maker loses, so not all Brokers allow it. It’s a high-risk strategy.
Interest paid or earned on positions that are held overnight is called rollover. It depends on the variations in interest rates of the currency pairs and changes daily with the prices movements. A Negative Roll occurs if the currency you sell has a higher interest rate, meaning you pay interest. Conversely, a Positive Roll earns you interest when you purchase a currency with a higher interest rate. Not all Brokers give Positive Rolls, though Negative Rolls are standard.
A common Forex strategy is “Carry Trade”; you use the leverage offered by Positive Rolls to profit. An example of this is the USD/JPY. You’ll borrow Japanese yen (which has a low rate) and use it to purchase the US dollar (which has a high rate). However, this leverage also magnifies your losses so be cautious; it’s high-risk.
Hedging refers to when you hold both a BUY and a SELL standing within a currency pair. The best way to trade an uncertain market is to look for solid support/resistance levels. This lets you determine which levels will see major price action.
Since they can end up losing on both ends of the trade, hedged positions don’t always limit traders’ risks. This strategy works short-term in range markets, but not in trending markets. A way to limit your risks is by using stop-loss orders.
In the US, in 2009, self-regulated organization – The National Futures Association – began using Compliance Rule 2-43. It forbids Forex Dealer Members’ customers from holding hedged positions in an account. Dealers from other countries may be exempt from this rule.
Does your Broker work 24/7? Because Forex trading does. If you ask a question, are you given an honest, simple answer or are they vague and unhelpful? Ask your Broker these 15 questions; if they can’t answer, find one who can.
Remember, Forex trading on margin is a high-risk form of investmenent and might not be right for everyone. The leverage can hurt you as easily as it can help. Before investing in foreign exchange, carefully consider your level of experience, risk appetite, and investment objectives. It is possible to lose partc – or even all of – your investment; never invest more than you can afford to lose. Should you have any doubts, seek advice from a professional financial advisor so you know all the risks.