By Kathleen Brooks, Brian Dolan. Foreign exchange or forex markets are one of the fastest and most volatile financial markets to trade. Money can be made or lost in a matter of seconds; at the same time, currencies can display significant trends lasting several days, weeks, even years.
Most importantly, forex markets are always moving, providing an accessible and target-rich trading environment. Online currency trading is offered by dozens of different retail trading brokerage firms operating from all over the world, so you have many options to choose from. How good are trading executions? The key to evaluating any brokers is the speed and reliability of your trade executions. Does your broker offer price improvement on limit orders?
How are orders filled? Find out exactly how your stop-loss or take-profit orders are filled. If so, are there any exceptions to such guarantees? Does the market bid price need to match the price of the limit order to sell, for example?
A reputable broker will have clearly defined order execution policies on their website. Are dealing spreads stable in all market conditions? Most forex brokers offer variable spreads these days. When market liquidity is high, the spreads will be tightest. During volatile market conditions and around major news events, spreads will naturally widen.
Tight spreads are only as good as the execution that goes along with them. What is the commission structure? Most online forex brokerages provide trade executions without charging trade commissions. Instead, the broker is compensated by the price spread between the bid and the offer. A few brokers offer a commission-based pricing structure coupled with narrower trading spreads. How much leverage does the firm offer? Too much of a good thing? In the case of leverage, yes.
Over the past several years, the maximum leverage available to retail traders has been reduced by regulators. For example, in the United States, the maximum available leverage is Generally speaking, firms offering excessively high leverage higher than What trading resources are available?
Evaluate all the tools and resources offered by the firm. Is the trading platform intuitive and easy to use? What charting tools are available? What newsfeeds are available? Do they provide live market commentary on a regular basis? What type of research does the firm provide? Do they offer mobile trading? Are you able to receive rate alerts via e-mail, text message, or Twitter? Does the firm support automated trading? Is hour customer support available? Forex is a hour market, so hour support is a must.
Can you access customer service firm by phone, e-mail, and chat? The quality of support can vary drastically from firm to firm, so be sure to experience it firsthand before opening an account.
Is the firm regulated, with solid financials? Who runs the firm? Review staff bios to evaluate the level of management and trading experience at the firm. Knowing the fundamental drivers of currency rates is the foundation of understanding price movements. This is very important to understand if you want to trade currency as an investment. Here are some suggestions:.
Understand the importance of expectations versus actual outcomes. Anticipate alternative outcomes to better gauge how the market is really reacting. Stay aware of the pricing in and pricing out of market expectations that occurs in advance of data and events. Factor incoming data and news into the major fundamental themes of interest-rate expectations, economic-growth prospects, inflation, and structural developments. Be aware that technical and position-related themes can overwhelm the fundamentals.
Identifying trading opportunities and planning each trade from start to finish is essential to success in currency trading. When you trade currency as an investment tool, remember to:.
Maintain trading discipline by formulating — and sticking to — a complete trading plan: Always trade with a stop-loss order. Determine position size based on the trade setup and your financial risk-management plan. Be patient — currencies move around a lot.
Wait for the market to allow you to enter your trade strategy. Stay alert, be flexible, but stick to your trading plan. Choosing a Broker for Currency Trading Online currency trading is offered by dozens of different retail trading brokerage firms operating from all over the world, so you have many options to choose from.
Grasping the Fundamentals of Currency Rates Knowing the fundamental drivers of currency rates is the foundation of understanding price movements. Here are some suggestions: Get to know the major economic data reports from all the major economies. Identifying Currency Trading Opportunities and Creating Trading Plans Identifying trading opportunities and planning each trade from start to finish is essential to success in currency trading. When you trade currency as an investment tool, remember to: Identify trade entry and exit levels in advance through technical analysis.More...