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Choosing
A Forex Broker by: Geoff Turnbull
With currency trading becoming ever
more popular, the number of brokers is growing at a rapid rate. What should
one look at when deciding which broker to open an account with? These are
the important points to consider.
Spread
Because currencies, unlike futures
and stocks, are not traded through a central exchange, the spread can be
different depending on the broker you use, so it's well worth checking
a few out before you open an account. Most forex brokers publish live or
delayed prices on their websites so you can compare spreads, but check
if the spread is fixed or variable. A fixed spread means exactly that -
it will always be the same no matter what time of day or night it is. Some
brokers use a variable spread, which might appear to be nice and small
when the market is quiet, but when things get busy they can widen the spread
which means the market must move more in your favor before you start to
make a profit. Fixed spreads are generally slightly wider than the variable
spreads are when at their narrowest, but over the long term fixed can be
safer.
Execution
Some brokers will show live prices
on their trading platform, but will they honor them when it comes to pushing
the Buy or Sell button? The best way to find out is to open a demo account
and give them a test drive. This will also give you the opportunity to
see what the speed of execution is like - when you want to buy, you want
to buy now, not sit around waiting for ten minutes whilst your order is
confirmed!
Trading Platform
Good trading software will show live
prices that you can actually trade at, not just indicative quotes. It will
offer Limit and Stop orders, and ideally will let you attach these to your
entry order. One-Cancels-Other orders are another useful feature - they
mean you can set up your trade and then leave the software to get on with
it. And the most important feature of all - can you actually understand
the platform? Having all the bells and whistles is of no use if you can't
use them, so again, get a demo account and give it a go.
Support
Forex is a 24 hour market, so your
broker should offer 24 hour support. You might not be trading at 3am, but
that could be what time it is in your brokers head office on the other
side of the planet, so make sure there will be somebody there to pick up
the phone if things go wrong. You should also check if you can close positions
over the phone - essential in case your PC or internet connection crash
at a critical moment.
Backing
Finally, before opening an account
do a little homework and find out about the company. Forex brokers are
regulated, but that doesn't mean they all have equal backing. If the market
collapses, you want to know that they've got the reserves to cope with
it and will still be around when you decide to withdraw your cash. If a
broker is elusive when it comes to questions about their parentage and
financial backing, then steer clear.
In Conclusion
Choosing a forex broker isn't difficult,
but don't rush the decision. Check out a few, and always get a demo account
first to make sure you're happy with the way everything works before sending
off your opening balance.
About The Author
Geoff Turnbull is a full time day
trader, and a contributor to http://www.forexheaven.com
Courtesy of
http://www.ArticleCity.com/
Trading
For A Living - Part 1 by: Geoff Turnbull
There can’t be many traders who haven’t
at least considered the idea of telling the boss what they think of him,
throwing it all in and going off to trade the stock market for a living.
It’s a big risk financially, and that uncertainty is what stops most from
jumping ship. Is it really possible to trade for a living?
The Dream
You know how it is, you’re sitting
in a traffic jam at some unearthly hour of a particularly wet and miserable
morning, on the way to the same office you have sat in for too long to
remember, and you’re thinking - there must be a better way – life shouldn’t
have to be like this. Your mind starts to wander and you find yourself
thinking back to that stock you bought only a week ago, and how it skyrocketed
giving you enough profit to takes the kids to Disneyland in the summer,
and you begin to consider if you couldn’t make a fulltime living at this
trading game. The advantages are certainly tempting; no more pointless
meetings with the manager, hours to suit, holidays whenever you feel like
it, and with your home-office - no more traffic jams. Heck, come to that
you could even make home anywhere you want it to be! By the time the traffic
starts moving again. you’re busily calculating how much cash you could
make if all your trades went like that last one - you’re almost ready to
write your notice letter there and then!
The Bad News
Time for a reality check. Certainly
all of the above benefits are there to be enjoyed, but it’s a huge step
from full time employee to full time trader. Are you really ready to give
up that monthly pay-check just yet? Can you really cope not knowing how
much money you’re going to make month to month? Are you prepared for the
months when you actually lose money instead of make it? There are many
things to consider before taking the leap of faith.
Considerations
Before you even think about trading
for a living you have to know how much money you need to live on, that
is, how much cash do you need to generate every month in order to survive.
As a financially minded person you already have good home accounts, or
are at the very least vaguely aware of where the money goes. So take the
annual figure (monthly is no good, you need to account for annual recurring
items like insurance premiums, car servicing, and vacations), add 50% and
divide by 12. Why add 50%? Because there will always be unexpected expenses,
and as traders we are always prepared to expect the unexpected. Now you
know how much money you need each month, you can look at your savings and
work out how much buffer money you have, that is, how long you could survive
without earning anything at all. You can’t expect to be an instantly profitable
trader, and even the best and most experienced have periods of drawdown,
so you need to be ready for the worst. If you can’t live for at least six
months from your savings then you are probably under capitalised and are
not ready to give up that pay-check just yet. An important but often overlooked
aspect of under capitalisation is the effect it will have on your trading;
if you are trading because you need the money, then you are trading scared
and you’re almost certainly going to lose. You cannot distance yourself
from the money-aspect of the trade if you are relying on the money.
Living expenses are only one part
of the financial equation. Next you must consider how much trading capital
you need. This is the money actually facilitate trading, in other words
your account balance for trading margin, and the money you will be spending
on data feeds, software, and internet access. You must account for this
separately, you cannot start eating into your daily living expenses money
just because you took a bad trade and need some more margin.
The amount of trading capital you
require will depend very much on your trading style. To day trade the US
Stock Markets for example, you must have at least $25,000 in your account,
so budget for $30,000 to allow for positions moving against you (if you
fall below the $25k minimum even briefly, your account can be frozen for
up to three months). If you are holding positions overnight you may manage
with a lower balance but bear in mind your buying power and consequently
returns will be reduced.
If all this is starting to sound
expensive, well it is. There’s no two ways about it, you simply cannot
survive long term as a trader if you are under funded.
Part 2
In part 1 of this article I started
to look at the financial implications of giving up the day job to instead
start trading full time for a living. There are more than just monetary
considerations as we will see later, but for now, there are some more costs
to ponder.
More Costs!
Let’s move on to equipment. Presumably
you already have a PC and internet connection by virtue of the fact you
are reading this on the internet. But are these both up to the job of trading
full time? Again the specifications for both hardware and ISP will depend
largely on your trading style, but if you’re relying on a 100Mhz Pentium
II and a dial up service, you’re setting yourself up for failure. So budget
for quality equipment, budget to keep it up to spec, and budget for some
repairs too – expect the unexpected. Many traders make the mistake of saying
“This will do me whilst I start out, and I’ll get something better when
I make some real money”. This is quite simply false economy, you are unlikely
to ever make real money with a substandard setup (and this applies equally
to substandard software and data feeds). This is a cut-throat business
and 95% fail, you must give yourself every advantage you can. You wouldn’t
enter the Indy 500 in a go-kart with the intention of buying a better car
when you’ve won a few races, and the same thing applies here.
Earnings
When you’ve added this all together,
you have a pretty good picture of how much money you need to generate from
your trading in order to live. Does your past performance suggest you will
be able to meet this target? It’s tempting to say “When I go full time
I’ll make much more”, but how do you know this is the case? Perhaps you
can take a couple of weeks holiday and try it out – if you don’t make enough
in that two weeks then you’re not ready. A few weeks really isn’t enough
time to know if you’re going to succeed though. An ideal next step then
is to cut your day job hours to part time and trade maybe two or three
days a week. This way you know you have some money coming in, you get to
trade for real, and if it all goes horribly wrong you are probably better
placed to get back into full time employment than someone who quit the
working world completely.
The option of part time work is a
luxury many of us don’t have however. So does it have to be all or nothing
– trade or work? Why not keep the day job and trade outside your working
hours as well. If you are trading and end of day strategy, then this is
easily achieved by doing your research in the evening and placing the appropriate
combinations of Stop and Limit orders with your broker. For day traders,
certainly practising is easier if your intended market is not your home
market, for example if you want to trade the US and you live in the UK
where you can come home and paper trade in the evening. There are other
try before you buy options open to the day traders who want to practise
trading their home market outside of normal hours though. eSignal allows
you to download tick data for any symbol and play it back in real time
or speeded up so you could trade the whole day in an hour. Other vendors
have similar offerings, and if you have an IB account you can use AutoTrader
to record tick data during the day for playback into a demo version of
SierraCharts or QuoteTracker for free.
The bottom line here is that before
you take the plunge, you need to have done everything in your power to
prepare yourself for what lies ahead. It will still be harder than you
ever thought, but it will be nigh on impossible with no preparation whatsoever.
Other Considerations
There are a few non-financial aspects
to consider before going full time with your trading. If you have a family,
how will the change impact them? Do you have the space to work uninterrupted
during the day? It’s important that the family don’t assume that because
you are at home you are automatically available to take the kids to school,
or walk the dog. Make sure from the start that everybody knows the ground
rules and that you can separate your working time from your free time effectively.
Consider also the social impact of
leaving your full time employer. Again, if you have a partner or family
are you going to drive each other nuts being in the same house all day?
Relationships can be tested to the limit! Or if you live alone, are you
going to drive yourself nuts being on your own all day? Trading full time
can give you enormous amounts of free time, but if you have nothing to
fill that time with you can quickly lose the plot – I’ve seen it happen
and it’s not pretty.
Is It Worth It?
Nobody can tell you if trading for
a living is for you, it’s something you have to find out for yourself.
I’ve seen traders go through highs and lows to challenge those of any stock
chart, but for most it has proved to be a good move. The long list of benefits
are all there for the taking, as with any change of career or indeed any
major life change, as long as you go into it with your eyes open, and above
all prepare, then there is no reason why it cannot work for you.
About The Author
Geoff Turnbull is a full time day
trader, and a contributor to http://www.stock-trading-world.com
Courtesy of http://www.ArticleCity.com/
Online
Forex by: Rafik Patel
Q1: When you consider that the foreign
exchange market has become the world's largest financial market, with over
$1.5 trillion USD traded daily, where does it go from here?
A1:The FX market is unique, in the
UK there is no central exchange, we trade via the inter bank market. With
more and more private individuals taking up margin trading and new forex
brokers setting up, I can only see the market grow in the near future.
Q2: Other than great liquidity, what
are the principal benefits attached to the forex market?
A2: There is less to consider when
trading the forex markets, there are only a number of variables that affect
the pricing.
Main advantages include
Forex Market allows 24 hour trading
Greater leverage - with most brokers
offering 100 – 1,
Less starting capital required,
More Liquidity - day trading has
to have enough volume to make it worth our while. The currency market is
more liquid than all the world stock markets put together. Currencies are
always in action,
Free trading systems
Better for shorting - There are artificial
controls built into the market to prevent it from going down too fast.
The reason is that we live in a biased world that likes to see things go
up instead of down. One of these artificial contraptions is the "uptick
rule," which comes into play when shorting stocks, making it more difficult
to sell a stock short than to buy it. This is unheard of in the currency
market. Selling currencies short while day trading is just as easy as buying
them.
Ideal for Short Term Traders -
Q3: Limited market access, liquidity
issues-after market hours, commission fees, capital requirements and short
selling/stop restrictions are just some of the issues investors face when
considering other markets. Given that the forex market removes many of
these traditional barriers and therefore does not restrict the forex traders'
ability to make a trade at the right time, are we likely to see an increase
in trading volumes this year?
A3: With all these advantages, traders
are finding it hard not to trade currencies, online trading volumes across
all products is increasing at a substantial rate, however FX trading, predominantly
amongst retail investors is becoming very popular.
Q4: There is stiff competition amongst
online forex service providers for retail forex traders with some claiming
to offer the same degree of technical analysis enjoyed by the world's largest
banks and institutional traders. Is this possible?
A4: Technical Analysis has come a
long way, more and more forex provides now have partnerships with firms
who provide analysis. However the banks still have an advantage, the markets
are still not under perfectly competitive economic model. The banks will
always have access to information that is not readily available, ISX FX
currently sources its information from a number of banks to fill this gap.
Q5: Do you subscribe to the theory
that forex is less volatile than stocks because the market is much deeper?
A5: As a bet on the direction of
a national economy, no currency has ever dropped 25 percent in a day, or
imploded as rapidly and completely as an Enron or a Parmalat. In the wake
of those scandals, many companies are meting out information more cautiously,
making it harder to get the real "scoop" on stocks one problem of trading
with too-high leverage is that one piece of surprise news can wipe out
one's capital. If you treat forex trading like a business, including proper
money management, you have a better chance of success."
Q6: U.S. interest rates-decade lows;
global trade wars and terrorism fears have dominated the headlines recently.
What impact has this had on retail volumes?
A6: The above factors have all led
to a decline in the dollar. This coupled with tighter regulation of brokers
has given investors more confidence in brokers. Also the stock market crash
has driven individuals to look at the profit opportunities offered by forex.
Q7: Stateside the Commodity Futures
Trading Commission (CFTC) has brought 58 actions against firms, since its
new powers were awarded in 2000. Given that certain brokers continue to
abuse the system, with investor money sometimes not being traded in the
markets promised. What can investors do protect themselves?
A7: The retail forex market is in
essence betting, as with any bookmaker there is always a risk that you
will not get your winnings, or the odds will be highly stacked against
you. With tighter regulation and increased competition, this risk of default
has largely disappeared. The risk of price manipulation still exists and
this will never really go away. Investors need to ensure that they have
an independent price source and trade with a broker who offers true one
click dealing. Most brokers work on the basis of the law of large numbers,
acting like the bucket shops of 50 years ago, they do not hedge any positions
and are directly competing against there clients. This will always lead
to price manipulation and further actions by authorities will inevitably
be taken.
Q8: What is this best way for “currency
rookies” to get involved in the market?
A8: Like with any new form of trading
you need to know what you are doing, especially as there is margin involved.
Take all the time you need to learn this new trading skill well -- practice
everything you learn with a demo account before you consider going 'live'
with your own money. Investors should read books, attend seminars and paper
trade until they are comfortable with there strategy.
About The Author
Rafik Patel C.E.O. ISX FX LIMITED.
www.isxfx.com
rafik@isxfx.com
Courtesy of http://www.ArticleCity.com/
