FOR FOREX TRADER

9-Step Guide for Choosing a Forex Broker

If you’re new to Forex trading your first and most important goal is choosing a Forex broker to work with. And the 3 most basic characteristics you should check out first are: reputation, experience and track record. Obviously, there are also other important qualities, and we’ll get to those in a minute, but everything else depends on that 3-part foundation.

Finding a Forex Broker

The safest approach to choosing a Forex broker is to contact the authority or agency that licenses brokers in your area. (And an extra little side tip – be especially careful when checking the background of any broker who approaches you with some dazzling, over-the-top offer, or who guarantees you’re certain to have success and sure winnings.) Start cautiously… don’t allow yourself to be rushed into decisions. That’s how many beginners are taken advantage of: many scam artists specialize in preying on the inexperienced because they’re so eager to get started that they often throw caution and common sense aside.

1. Check Their Reputation

The Forex trading world is a fairly tight community. Use that fact for your protection. After you’ve done your initial research, work up a shortlist of 3 brokers you consider strong candidates. Then begin your due diligence. Research them online. Ask around for word-of-mouth opinions. And definitely contact governing authorities to check for a pattern of complaints in their history. Ask other traders about the experiences they’ve had with the brokers you’re considering. Ask friends and others with experience in Forex trading to recommend a reputable broker. Find out if they’re easy to deal with by first contacting their customer service desk with ALL the questions you have. If their answers are slow (or sketchy), it’s better to steer clear.

2. Check Their System of Safeguards

Don’t go near a Forex broker who has few safeguards for protecting you as a customer. Find out the name and contact information for their regulatory body. What protection does that organization provide – and is it hard to shake it loose? Are the funds of clients shielded from possible fraud or bankruptcy?

3. Do They Offer a Free Trial Account?

A very common introductory inducement is a free trial trading account. Basically they’re giving you “play money” to practice with. When choosing a Forex broker this trial account gives you an excellent opportunity to learn exactly how the system works and to see how you might profit or lose when you move on to using real money. Some brokers also offer training videos for beginners, or even send out an actual Forex broker to help you in person. The level of service the broker provides during your free trial is a good indicator of how you’ll be treated once you sign up as a customer. You’ll also learn how their system functions, meaning you’ll already know your way around before your own money hits the table.

4. Check Out the Extras They Offer

Most of the reputable and trustworthy brokers offer pretty much the same kinds of tools for you to work with. Some processing fees are a bit higher, some a bit lower. Some offer free trading advice while others offer the simulated trading mentioned above with a practice bankroll of $50,000 or so. Most reputable Forex brokers will also have basic lessons in online trading available. The training may come to you via email or by DVD. Also check to make sure they can provide customer service 24 hours a day.

5. How Secure Is Their Online Server?

One of the most crucial elements is security. Your Forex broker absolutely must provide a fully secure trading environment to keep your personal details private and the money you invest safe from theft.

6. Check for Hidden Charges

Are the Forex brokers you’re investigating totally upfront regarding costs? It’s a good idea to ask them specifically about hidden costs and also whether they offer special terms for more frequent trading. You have a right to expect – and receive – full transparency from your broker in all operations. When you’re choosing a Forex broker, any questions about costs, returns or other information should be met with prompt, understandable and honest answers. If they waffle, drop them.

7. Compare Several Free Trial Offers

Actually using a number of different free trial offers is one of the best ways to compare the look and feel of each Forex broker’s online trading platform. Is it a good fit? Is one of the interfaces more logical-seeming or more comfortable than the others? Check to see which you’d prefer using long-term. Some websites even offer charts comparing the features between larger brokers so you can instantly see which services are offered and how their operations differ.

8. Are They Far Away or Local?

Your safest choice is to choose a Forex broker in your local area. That way, you and your broker are both close to the authorities you’d be contacting for help if anything went wrong. Another factor is the currency your broker uses – is it the same as your local currency? An offshore broker would be denominating all transactions in their local currency, which could involve extra fees and affect your returns.

9. Is Their Trading Platform a Good Fit for You?

Another vitally important factor to consider when choosing your Forex broker is the trading platform they use. This includes the currency pairs offered and their typical spread (difference between bid price and asking price). Once you’ve opened and used practice accounts with a few brokers, you’ll have enough experience to judge which platform is the best fit for you.

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Remember, the broker you select is the person who will stand beside you in any success or failure you have. Don’t opt for failure before you even begin by choosing a bad broker with a disreputable or dishonest record. Thoroughly research all the brokers on your shortlist and be sure to spend some time with their practice accounts. This ensures that, when choosing a Forex broker, you’ll know how they operate before you ever spend a penny.

In its simplest terms, Forex trading is swapping one handful of money for another handful of money. The good news is, if you, as a Forex trading beginner, do it right, you’ll actually make a profit from it. You literally buy one currency and sell another, guided by which transaction seems most likely to be profitable for you.

The currencies of countries all over the world are constantly changing in value, moving up and down in relation to each other. This goes on all day, every day, throughout the year. The direction a currency moves is influenced by the political, economic (and even weather) events in that country. If there is a “secret” for the Forex trading beginner… it is to keep yourself informed about these movements and to learn when is the most profitable time to buy a specific currency and when you should sell.

Before Forex Trading – A Brief History

In earliest times, before money even existed, exchanging one thing for another thing was the normal way to trade. Today we call this bartering, and it began with daily necessities – my fish for your corn, my spices for your fabric – and it gradually grew too complicated for swapping one kind of goods for another. Eventually, people found it simpler to use jewels and precious metals like silver and gold to symbolize their goods. Even later, civilizations found that they needed some kind of standardized system, so money (coins) were invented. But as trade continued to grow, even coins became too bulky and heavy, so scrip, or paper money was developed.

Now, fast forward through history and it gradually became useful to actually trade the currencies themselves. The relative values of those currencies came to depend on increasingly intangible factors such as the size of their countries’ economies and how politically stable each country was.

Now enter currency trading. For the Forex trading beginner, it can all be pretty confusing with the constant barrage of numbers coming at you from every direction. Until you get past this early confusion, it’s very wise to use a broker for your Forex trading. Unless you’re a licensed plumber or electrician, for example, you probably wouldn’t tackle your own home remodeling projects. And you certainly wouldn’t do your own brain surgery, no matter how qualified you are. Likewise, instead of just jumping in and learning Forex trading by trial and error, it would be good to put yourself into the hands of a good reputable broker who can teach you how it all works.

What’s the Appeal of Forex Trading?

Currency trading can seem like a game to those with a little discretionary cash to risk. But remember, it is very easy for beginners (actually for anyone) to lose more money than they gain, so never play with more than you can afford to lose (because that could easily happen). The Forex market is really a lot of different currency markets in various countries distributed all around the world, so at least one of those markets is open (and often several) at any one time, 24 hours a day. This means that Forex trading goes on constantly round the clock, Monday through Friday, and Forex dealers are always available to help you invest.

What is the Risk?

A country’s currency can, without warning, suddenly rise or fall, triggered by events happening within that country. Such events can include (but are not limited to) the outbreak of war, a change of administrations, hurricane, earthquake, or any other disaster that could impact communication, transportation and crops or resources. This illustrates just how volatile the currencies market actually is. You never know what might come next, so this morning’s investment could turn good or bad within minutes, depending on an amazing range of events.

While risk scares many people away from Forex trading, this very same risk actually appeals to others. It may be like sitting at a giant slot machine, and instead of just 3 pictures to line up, the Forex trading beginner could have 20 of them. Or 50.

However, currency trading is not a 100% random gamble. Many ways to measure, quantify and analyze have been developed, and this tends to partially equalize the odds for the careful investor. This makes it a little more of a numbers and logic game. Mastering these methods of analyzing takes experience, but without that experience, a beginning investor could very quickly lose both savings and self confidence.

Vulnerable to Scams

Anywhere there’s money, you’ll find scams. That’s one of the facts of life. Since Forex trading offers at least the potential to make a million dollars from an initial investment of $1,000, it sounds like a very sweet deal to the Forex trading beginner. But this is exactly how over-excited, under-cautious new investors get swept away by stories of amazing riches. Clever scammers know this, so they use the impatience and naivety of newcomers to separate them from their money.

Remember – it is written that a fool and his money are soon parted. It doesn’t say he can’t get money… just that he won’t keep it long.

Low Entry Requirements

The initial deposits required for entering are quite small, so it’s easy to start playing the currencies market. And thanks to the low margin requirements, even small-time Mom-and-Pop investors can get into the game without putting their entire life savings at risk. At the same time, however, it can all feel just a bit TOO easy, and if an investor has a run of good returns at the beginning, he may be tempted to risk more than he can really afford.

What Is Bought and Sold?

All Forex trading is done with pairs of currencies. You simultaneously buy one currency and sell the other. The most commonly traded currency pairs are the Euro and US dollar, the US dollar and Japanese yen, the US dollar and Swiss franc, and the British pound and US dollar.

As with any new activity, especially an activity that involves a degree of financial risk, you should start by taking only baby steps. The safest way to begin Forex trading is to study, practice and gain an understanding of how things are done before you put money into the game.

Do your homework, look for a course, or dig into online Forex market websites. Never even think about using a broker or trader who isn’t backed up by a reputable company. The Forex trading beginner may find it all very thrilling, but it can also be disastrous at times. Approach it the smart way. Start small, be cautious and gradually build up your experience.

If you think that knowing the mechanics of Forex trading is all you’ll need to build a success, you’ll be disappointed. The know-how you need involves more than just learning a set of mechanical skills. To truly master this rich and constantly changing market, it’s also necessary to understand some of the background involved in currency trading before you’ll ever begin to earn big money.

Simply knowing how to trade currencies and being familiar with the major currencies traded (US dollar, Euro, Japanese Yen, etc.) is only a start. It’s also essential to really grasp when to trade and which currencies to trade.

In other words you need to develop a number of trading strategies. So, what are typical Forex trading strategies? Below are a few money making strategies to help guide you when trading.

If correctly used, these strategies can earn you very large sums of money relatively quickly. And to get the most from these suggestions, you must first “get” that Forex trading is very unlike stock trading, meaning that the strategies will be quite different. So if you have experience with stocks, you’re going to have to partly unlearn what you already know.

The first strategy is the leverage trading strategy. In the leverage strategy, you as a currency investor borrow money to power up your earning potential.

This strategy makes it possible for you to leverage your money at a 1:100 ratio. Be aware, though, that there’s risk here. This is why you should learn to use stop loss orders to minimize the risk as well as to minimize losses. The leverage strategy is one of the most commonly used strategies among Forex traders for maximizing profits.

Next is the stop loss order strategy. As a Forex trader, you will select a predetermined point in the trade beyond which you will not trade. You’ll use this strategy to minimize both your risk and your losses. This strategy can sometimes backfire on you, however. For example, if the value of the currency rises higher than you expected, the stop loss order can interrupt what would have been an even more profitable trade.

Of course it’s up to you to decide if you will be using this strategy. Hint: the risk in NOT using it is almost always greater than the risk if you DO use it.

Here are a couple of other tips to remember for earning good profits in the market:

The first and the last ticks are usually the most expensive. The rule of thumb is to get in a little late and to get out a bit early.

Never ever throw more money into a losing position. If you’re losing, simply get out – right now – and go find another trade.

Bet with, not against. Select trades that move in the same direction as the prevailing trend. This minimizes the risk of losing money while maximizing your chances of profits.

A number of tools are available to guide your decisions when trading in the Forex market. One is Forex charts. Charts are probably the most important tool you can use to visualize market trends and project the most likely future value of a currency. Although charts aren’t 100% accurate, you can use them as a guide to grasping what’s happening in the market.

You’ll need to learn how to read the different charts involved in the Forex market. There are daily charts, hourly charts, 15 minute charts… and even 5 minute charts when you want a really closeup look at the action. You can compare the data in each of the charts to spot potentially profitable market trends.

This can also help you minimize the risk when trading currencies. Learning how to read charts effectively and rapidly will put you well on your way to success as a Forex trader.

Keep these strategies and tips in mind and you’ll stand a better chance of minimizing the risks in trading and maximizing your profit potential. Depending on your skills and how you apply your strategies, you really can make large profits in the Forex market.

Ironically, however, to be a truly successful Forex trader, you must first accept the fact that sometimes you’re going to lose money. The trick is to take it in stride, as a normal part of Forex trading. Master that “trick” and you’ll never get discouraged when it happens.

Analyze any mistakes you make, think how you’ll avoid it happening again. Then get back in, recoup your losses, and go right on trading.