![]() |
![]() |
Forex Brokers
There are 4 main types of Forex brokers: market operators, market makers, small brokers and kitchens. a) Market Operators This most reliable group includes big commercial banks which are regulated according to bank laws and rules. But to trade with such banks one needs bills of big amount, as from bigger multinational companies, keeping them away from the private investments. Minimal lot is approximately $1 000 000. b) Market-makers Market makers are financial not numerous enterprises which work with smaller broker companies and offer theoretical opportunities of Forex trading to individuals whose trading capitals exceed $50,000. They offer lower cost of Forex market trading and as a rule have more reliable financial base and integrity. However, the minimal size of the bill for $50,000 keeps them away from the main Forex market traders. c) Small brokers Here are little broker's enterprises working with individuals' small capital - which is from hundreds up to several thousand dollars. Risks of carrying out of deals begin when these little broker enterprises clear orders of their clients and work with the dealer or a market-maker. As minimal sizes of the bill which the market-maker demands from these brokers are bigger, it often happens that the local broker merges capital from all the bills of their clients in one bill at a market-maker intended for a broker company. According to this system, the Forex market trader makes the broker company's dealer to get the quotation on an input or an output from a position, and the dealer, in his part, to receive the quotation, influences a market-maker. As soon as the quotation reaches the Forex market trader, he or she instructs the dealer about an input in a new position or an output from an existing position, and the dealer writes it down at respective regulation of the client's bill. As this is the most important moment of the deal, and the dealer makes the respective bargain on their own bill at a market-maker. Therefore, if the client's market inquiry or the deal goes well, the client gains benefit - which is gross profit from Forex market trading a minus spreads and commission fee. The broker company also gets its own respective benefit on Forex deal with their market-maker which is the same as net profit that they will pay to the client plus their own commission and, maybe, little spread. Lost in this deal - the market-maker which has put this money in a pocket, but has lost profit gross from the deal on the whole, got by this broker company. It's important to remember that some broker companies give the client spread bigger than they themselves get from a market-maker, and that's another way of getting benefit in addition to their commission. Certainly, they'll never confess it. The spread can be twice as great. Of course, if the client's case turns out to be unsuccessful, the broker company suffers big loss from the client's bill and will have to pay a market-maker the pure loss after withdrawal of its broker payments and commission fee. In any case, the broker company still gets the commission and a little spread. d) Kitchens The scheme of "kitchen" works fine if somebody doesn't start to win all the time. Their founders know that many clients just lose their money. And the profit of "kitchen" is these clients' losses. Then "kitchen" is closed with the remnants of clients' money and about two months later appear under other name. The scheme usually works like that. They offer to teach you for free and to learn how to trade in Forex market. They say this will easily bring you unbelievable profit for the short period of time. They make you believe that 5 % a month is quite achievable but only in case if you open the bill of $1000 at their company. Their teachers are as a rule fine either non-professional Forex market traders or even the people who have never traded in Forex market independently. These lessons last for only several hours. Sometimes the clients are taught with the help of programs "simulators" where any trader "is earning" about 1000 % a week. The biggest part of these "students" are losing their deals from the very start, and every time they're sure that was a good lesson which will make their technics irreproachable, and their following Forex market trading will go successfully. Many of these clients run out of their deposits fast and leave the market, while more stubborn ones "add" money to their bills to receive another chance and to gain profit at last. Al last they lose all their money and leave with physical and financial damages. It's the "victory moment" for such firms as it is their bread and butter. It's they who gain the biggest part of profit on losses of such deals, and many firms also win from spreads or commission fee which they demand for these transactions. Strictly speaking, a broker is an individual or a company that buys and sells orders according the investor's decisions. A FOREX broker needs to be associated with a large financial institution such as a bank in order to provide the funds necessary for margin trading. In the United States a broker should be registered as a Futures Commission Merchant (FCM) with the Commodity Futures Trading Commission (CFTC) as protection against fraud and abusive trade practices. The best advertising is word-of-mouth advertising, and this is just as valid in FOREX trading as it is for any other type of business. Talk to friends and associates to see who they are dealing with and find if they have any complaints or difficulties in dealing with a particular broker. You could try selecting a few online brokers and contact their Internet help desks to see how quickly they respond to enquiries and whether or not they answer questions to your satisfaction. Keep in mind, however, that pre-sales service may be better than after sales service. This can be true for any online business, not just FOREX brokers. Customer satisfaction and safety are just part of the story. You want to find a broker who executes orders quickly and with minimum slippage. All online brokers should offer automatic execution and have clear policies regarding slippage. They should be able to tell you how much slippage can be expected in both normal and fast-moving markets. Next you want to know the fees involved. What is the spread? Is spread fixed or variable according to the type of account? Are mini accounts subject to wider spreads? Are there any other charges? Smaller spreads mean more profit for the trader, but there may be a trade-off between spread and service. Look at the overall picture before deciding to go with a particular broker. Margin accounts are the lifeblood of FOREX trading, so be sure you understand the broker's margin terms before setting up an account. You need to know the margin requirements and how margin is calculated. Does margin change according to the currency traded? Is it the same every day of the week? Some brokers may offer different margins for mini and standard accounts. Trading software is very important for the online FOREX trader. Get a feel for the options that are available by trying out a demo account at a few online brokers. Above all, you are looking for reliability and the ability to perform well in fast-moving markets. The software should offer automatic trading and may have special features such as trailing stops and trading from the chart. Some features may only be available at an extra cost, so be sure you understand what your trading needs are and how much the broker charges to provide them. Other information to find out about includes the broker's policy regarding minimum account balances, interest payments on account balances, which currencies can be traded and whether or not non-standard sized lots can be traded. You should also find out whether clients' funds are insured and the extent of that insurance. |