Spread
The difference between the price you can buy at, and the price
you can sell at, is called the spread. It's one of the hidden costs
of trading, and applies to any market not just forex. 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
favour before you start to make a profit. Fixed spreads are
generally slightly wider than the variable spreads are when at their
narrowest, but smart forex angels know that over the long term fixed
is safer.
Execution
Once you're ready to trade, will you be able to do so at the
price you can see on the screen? A quality forex broker will be
showing you live prices on their trading platform (see the next
section), but will they honour those prices 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 not sit around waiting for ten
minutes whilst your order is confirmed! Anything longer than a few
seconds is too slow.
Some forex brokers offer guaranteed Stop orders. With these
orders, it doesn't matter how quickly the market might move against
you, your stop will be honoured at the price you set. Many brokers
say they will "try" and guarantee stops, but that's very different
to actually doing it. If the broker you are looking at makes any
claims like this, check out exactly how strong that guarantee really
is.
Trading Platform
All the forex brokers offer their own trading platforms. Some
look remarkably similar, because some smaller brokers licence the
software from the larger outfits. A good trading platform will show
you live prices that you can actually trade at, rather than just
indicative quotes. It will also 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.
Taking things further, if you are interested in linking your
platform into other software, such as a more advanced charting
package, or even your own software for automating your trading, you
will want to have a look at any API capabilities the platform might
offer. API stands for "Application Programming Interface", and it's
a way of connecting different programs together. Not all brokers
open up their platform in this way.
Support
Forex is a 24 hour market, so your forex broker should offer 24
hour support. You might not be trading at 3am, but that could be
what time it is in your forex 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. The best way to test out the support
is to call them up or email them a few times before you open an
account. Make a nuisance of yourself - if they don't treat you with
the respect and attention you deserve before you become a
customer, it won't bode well for the future. You'll also want to
find out if you can close positions over the phone - essential in
case your PC or internet connection go down at a critical moment.
Backing
Last but most definitely not least, before you open an account do
a little homework and find out about the company. Forex brokers are
regulated of course, 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 savvy
forex angels steer clear. |
