It is important for you to read and get familiar with the forex trading broker policies of each service you are opening account with. Here, we break down the policies into various common topics to understand which are more crucial to us.
1. Currency Pairs Available
Before you open an account with the broker, check what are the available currency pairs offered by the dealer. Typically, the 7 major currencies are a must. They are AUD, CAD, CHF, EUR, GBY, JPY, and USD.
2. Margins
Margin determines how much your leverage is. The lower the margin requirement, the higher the leverage is. This translates to greater potential for higher profits and losses. This figure is a percentage and can vary from 1 to 10 percent.
If your position is in your favour, then low margin requirements work well for you. But if you are losing, then low margins can hurt you badly. So use them wisely and while low margins are good and can be available through some brokers, you do not really need to stretch them fully.
3. Transaction Costs
Transaction costs are measured in terms of pips. Dealers that charge a low number of pips enables you the trader to earn more. It is hence useful to compare the spreads among different brokers. As a rule of thumb, use the major currency paid EUR/USD as a benchmark. A bid/ask spread of 2 to 4 pips is considered reasonable.
4. Minimum Trading Size
The lot size can vary from broker to broker. Some can be in the units of 1000, while others swing to 100,000 unit lots. Nowadays, mini lots are quite popular and common. A mini lot is 0.1 of a normal lot. Occasionally, you do come across dealers that offer the flexibility of trading odd lots.
5. Rollover Charges
Rollovers occur when a transaction continues for more than two days, and the Forex trading order is automatically rolled over to the next day. Each rollover has a transaction charge and the charges are determined by the difference between the US interest rates and the interest rates in the traded currency. The greater the difference, the higher the charge.
6. Trading Account Interest Rate
Brokers do pay an interest on your trading account. The interest rates are not fixed. While you are not trading, the brokers would pay you for the equity in your account.
7. Policies Defined in Fine Prints
Cultivate the habit of reading “fine prints” to see if they do have some other policies. If you smell something fishy or are in doubt, seek to clarify with the broker.
One final word of advice – the forex trading market is an exciting and dynamic one. It is helpful to participate in active forex trading forums like www.forexforum.net, www.moneytec.com, www.piptrader.com and www.global-view.com to learn more about sourcing for forex trading brokers.
One Response
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Jackson Says:
Thanks for the info!
