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Forex Broker

Of course these factors influence your bottom line, however, there's more to selecting your broker than spreads and commisions alone. You might want to check out the list that follows:

Evaluating Forex Brokers

• low spreads - 3 pips spreads for the most liquid currency pairs is the norm. Heavy traders may get better deals. I know of some European Forex brokers, that honestly believe that their offer of a 5-pips spread is a super deal. Wake up European Forex brokers! Note that some brokers have floating spreads within currency pairs. The actual spread is determined by current market liquidity, volatility and who knows what. Get a broker that offers fixed spreads for currency pairs.
• commision free trades - a funny marketing ploy really, as I've not been able to find Forex brokers that indeed charge commisions for a full lot. These houses make money off the spread between opening and closing a position. Forget about commision free trades, as for normal Forex trading, this is non-existent.
• Leverage offered - another marketing ploy, but really too dangerous to be funny! Actually using the leverage offered by some brokers is the fastest way to clear your account. Really, it is! Do the math yourself: what is your effective portfolio leverage, if you use a risk profile of only say, 2%? This risk profile, combined with the stop distance of your trading system defines how many positions may opened at any one time. So what's your leverage then? It goes to show that using leverages up to 1:400 (!) is sheer folly, inconsistent with any type of sensible trading.
• guaranteed stop execution - bottom line: you're not going to get it at least not when you need it the most, despite promises to the contrary! The small print always includes a sentence somewhere that says that in very volatile markets, guaranteed stop execution may not always be possible. So what do you reckon is the value of this so called 'guaranteed stop execution', really?
• How safe is your money going to be? - The demise of one of the largest Forex brokers in 2005 makes this a rather contemporary issue. Now, you could indeed check the quality of the bank that is behind all of this, but what do the agreements with your broker say? If they go down the drain, how can you block them having access to your account?
• Broker is hedging your open positions? - This makes sense from the broker's risk reduction point of view. But do remember: in this situation your broker is actually betting against you and he has access to your purse as well. How do you know whether your broker is just hedging his risk? Since his hedging makes him a market participant, how do you tell that your broker isn't also trying to eek out a little profit for himself? So far, I've not been able to determine whether this may be happening or not, but I see a real conflict of interest here...

Forex market not regulated

Please remember that the Forex market is not regulated like the futures and option markets are. There's no such thing as a single market or market wide standard contract you engage when opening a position. Each Forex broker effectively is a market maker. Each of them is offering their services according to their own conditions which you should study very closely.

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