Forex Education \ Online Forex Broker - Avoid Selecting the Wrong Broker By: Matthew Johnson

Online Forex Broker - Avoid Selecting the Wrong Broker
By: Matthew Johnson

Online forex broker is a company that help traders by provide trading platform where they can buy or sell various currencies. As a trader, you will use these brokers services to access the forex market 24/5.

These brokers are usually compensated through the bid-ask spread of a currency pair. For example: EUR/USD bid price is 1.4613 and ask price is 1.4616. If a trader makes entry to the market at that time he can either buy at price 1.4616 (ask) or sell at price 1.4613 (bid). In this case the spread is 4616-4613=3 pips.

An online forex broker will apply different spread for different currencies, so make sure you check this information on their website, especially the currency pair that you have interest in. For widely used currency pairs like EUR/CHF, GBP/USD, or EUR/USD, it is pretty common to have low spread 2-4 pips. But other currency pairs like CAD/JPY, EUR/CAD, and CHF/JPY have higher spread of 8-17 pips.

Although most of forex brokers make their incomes through spread, there are also brokers that charge commission fee per trade in addition to their profit from spread. This commision will be charged per lot. One lot is 10,000 units of currency; for instance: 10,000 unit are the same with EUR 10,000; GBP 10,000; USD 10,000;etc.

So, do you need $10,000 in order to enter forex trading? No; the current forex market is using leverage system. A 200:1 leverage means that you only have to deposit 10,000 / 200 = $50 in order to trade 10,000 units or one lot. In other words, if you use a forex broker that charges per lot, you will see missing from your profit each time you trade.

When you decide to use an online forex broker, you will gain access to their online trading platform. These platform will give you access to live price, chart, news, put take profit or stop loss order, execute a trade, and various other resources to support your everyday trading.

Based from various testimonials, not every trader can get used to a particular trading platform, so it is a good idea to test it first in a demo account for at least a week or so. I suggest you try a few trading platforms at once and see which one fit you the best. Remember to pay attention to how quick the platform executes your order.

Opening a practice account has other uses too. If you are an experienced trader and have certain strategies, you might want to test if the platform supports it or not; for example: hedging.

Hedge a trade is have buy and sell trades in the same currency open simultaneously. It can be used by a trader to lock his loss position.

Example: a trader buy EUR at 1.4815, then the price dropped to 1.4785. Instead of closing the lose trade, he sell EUR for 1.4785 and thus lock the loss at 30 pips. Then he waits the market movements and hopes to avoid loss by closing the two positions at the right price. This is quite high risk strategy, so usually a trader will choose stop loss instead.

So here are what to check on an online forex broker:

1. How the brokers earn their money; is it through the difference between buy and sell price? Or is it by spread and commission? Check the spread for your preferable currency pairs and if they charge commission, check the commission rate per lot.

2. Test the trading platform to make sure you are comfortable with the interface, has various resource to support your trades, execute your order in an instant, and the server doesn't down too often.

3. If you have particular strategies that not commonly used, check if the trading platform supports the strategies or not.

4. If you are a forex robot user, check via live chat or email to make sure that they allow it. You can do this quickly by utilizing the live chat feature. There are some very good robots at the market currently and you may decide to use one of them someday, so I suggest you take the one that allows it.

Selecting the right online forex broker doesn't has to be a complicated process; just test their platform and use the live chat feature to ask the rest of the questions.

About the author:

As a trader, Matthew Johnson has tried many different systems. Read about his suggestion about a forex broker that offer the most benefits at 4XP review. If you need further research to make sure that you have selected the right one, read his guide at currency trading account