Choosing a Forex Broker

Before trading Forex you need to set up an account with a Forex broker. So what exactly is a broker? In simplest terms, a broker is an individual or a company that buys and sells orders according to the trader's decisions. Brokers earn money by charging a commission or a fee for their services. You may feel overwhelmed by the number of brokers who offer their services online. Deciding on a broker requires a little bit of research on your part, but the time spent will give you insight into the services that are available and fees charged by various brokers. Is the Forex broker regulated? When selecting a prospective Forex broker, find out with which regulatory agencies it is registered with. The Forex market is labeled as an "unregulated" market, and it basically is. Regulation is typically reactive, meaning only after you’ve been bamboozled out of your entire savings will something be done. In the United States a broker should be registered as a Futures Commission Merchant (FCM) with the Commodity Futures Trading Commission (CFTC) and a NFA member. The CFTC and NFA were made to protect the public against fraud, manipulation, and abusive trade practices.

You can verify Commodity Futures Trading Commission (CFTC) registration and NFA membership status of a particular broker and check their disciplinary history by phoning NFA at (800) 621-3570 or by checking the broker/firm information section (BASIC) of NFA's Web site at www.nfa.futures.org/basicnet/. Among the registered firms, look for those with clean regulatory records and solid financials. Stay away from non-regulated firms! The NFA is stepping up their efforts in educating investors about retail forex trading. They’ve created a brochure fit for a Pulitzer Prize called, "Trading in the Retail Off-Exchange Foreign Currency Market". The NFA recommends you read it before taking the forex plunge. They’ve also developed a Forex Online Learning Program, an interactive self-directed program explaining how retail forex contracts are traded, the risks inherent in forex trading and steps individuals should take before opening a forex account. Both the brochure and the online learning program are available at no charge to the public. Customer Service Forex is a 24-hour market, so 24-hour support is a must! Can you contact the firm by phone, email, chat, etc.? Do the reps seem knowledgeable? The quality of support can vary drastically from broker to broker, so be sure to check them out before opening an account. Here’s a good tip: choose several online brokers and contact their help desks. Seeing how quickly they respond to your questions can be key in gauging how they will respond to your needs. If you don't get a speedy reply and a satisfactory answer to your question, you certainly wouldn't want to trust them with your business. Just be aware that as in other types of businesses, pre-sales service might be better than post-sales service.

Trading with brokers. Foreign exchange brokers, unlike equity brokers, do not take positions for themselves; they only service banks. Their roles are to bring together buyers and sellers in the market, to optimize the price they show to their customers and quickly, accurately, and faithfully executing the traders' orders. The majority of the foreign exchange brokers execute business via phone using an open box system — a microphone in front of the broker that continuously transmits everything he or she says on the direct phone lines to the speaker boxes in the banks.
This way, all banks can hear all the deals being executed. Because of the open box system used by brokers, a trader is able to hear all prices quoted; whether the bid was hit or the offer taken; and the following price. What the trader will not be able to hear is the amounts of particular bids and offers and the names of the banks showing the prices. Prices are anonymous. The anonymity of the banks that are trading in the market ensures the market's efficiency, as all banks have a fair chance to trade.
Sometimes brokers charge a commission that is paid equally by the buyer and the seller. The fees are negotiated on an individual basis by the bank and the brokerage firm. Brokers show their customers the prices made by other customers, either two-way (bid and offer) prices or one way (bid or offer) prices from his or her customers. Traders show different prices because they "read" the market differently; they have different expectations and different interests. A broker who has more than one price on one or both sides will automatically optimize the price. In other words, the broker will always show the highest bid and the lowest offer. Therefore, the market has access to an optimal spread possible. Fundamental and technical analyses are used for forecasting the future direction of the currency. A trader might test the market by hitting a bid for a small amount to see if there is any reaction. Another advantage of the brokers' market is that brokers might provide a broader selection of banks to their customers. Some European and Asian banks have overnight desks so their orders are usually placed with brokers who can deal with the American banks, adding to the liquidity of the market.
Direct dealing. Direct dealing is based on trading reciprocity. A market maker—the bank making or quoting a price — expects the bank that is calling to reciprocate with respect to making a price when called upon. Direct dealing provides more trading discretion, as compared to dealing in the brokers' market. Sometimes traders take advantage of this characteristic. Direct dealing used to be conducted mostly on the phone. Phone dealing was error-prone and slow. Dealing errors were difficult to prove and even more difficult to settle. Direct dealing was forever changed in the mid- 1980s, by the introduction of dealing systems. Dealing systems are on-line computers that link the contributing banks around the world on a one-on-one basis. The performance of dealing systems is characterized by speed, reliability, and safety. Dealing systems are continuously being improved in order to offer maximum support to the dealer's main function: trading.
The software is rather reliable in picking up the big figure of the exchange rates and the standard value dates. In addition, it is extremely precise and fast in contacting other parties, switching among conversations, and accessing the database. The trader is in continuous visual contact with the information exchanged on the monitor. It is easier to see than hear this information, especially when switching among conversations. Most banks use a combination of brokers and direct dealing systems. Both approaches reach the same banks, but not the same parties, because corporations, for instance, cannot deal in the brokers' market. Traders develop personal relationships with both brokers and traders in the markets, but select their trading medium based on price quality, not on personal feelings. The market share between dealing systems and brokers fluctuates based on market conditions. Fast market conditions are beneficial to dealing systems, whereas regular market conditions are more beneficial to brokers.
Matching systems. Unlike dealing systems, on which trading is not anonymous and is conducted on a one-on-one basis, matching systems are anonymous and individual traders deal against the rest of the market, similar to dealing in the brokers' market. However, unlike the brokers' market, there are no individuals to bring the prices to the market, and liquidity may be limited at times.
Matching systems are well-suited for trading smaller amounts as well. The dealing systems' characteristics of speed, reliability, and safety are replicated in the matching systems. In addition, credit lines are automatically managed by the systems. Traders input the total credit line for each counterparty. When the credit line has been reached, the system automatically disallows dealing with the particular party by displaying credit restrictions, or shows the trader only the price made by banks that have open lines of credit. As soon as the credit line is restored, the system allows the bank to deal again. In the inter-bank market, traders deal directly with dealing systems, matching systems, and brokers in a complementary fashion

Secret Recipe for the Ultimate Business

Here are the SECRET ingredients needed to create the ultimate business: You Computer Internet connection Desk (or sofa) That’s it! No employees. No advertising. No cold calling. No inventory. Imagine a business with just you, your computer, and a high-speed Internet connection?! That’s all you need trade in the foreign exchange market!! A properly trained Forex trader can potentially earn BIG PROFITS in every single month, week, or day! (Of course a poorly trained Forex trader can suffer BIG LOSSES as well.) Let’s continue with the TOP SECRET directions: Walk about ten steps and

Sit in front of your computer (or sit on your sofa and place laptop on your lap)

Turn on computer and make sure Internet connection is working Open charts and trading platform Trade currencies Make money! Presto! You’ve just learned how to create the ultimate business. Okay it's not thaaaat easy but you get the picture. Consider the Following and Judge for Yourself You are your own boss! You don’t need any customers! You don’t need employees! You can operate from home, work, vacation or anywhere else in the world as long as you have a high-speed Internet connection. You never have to worry about job security, harassment or any other employment-related anxiety. You never need to worry about employer payroll, strikes, theft, rent increases, health inspectors, lease problems, being sued, etc… You don't need to do any cold calling. You decide which days you wish to work. You make the decision to take a vacation at a moment's notice. You are your own boss!