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Forex Made Easy
Sunday, February 1, 2009
Friday, January 30, 2009
Forex Spread: What is the Spread and What You Need To Know About It
Your main expense in forex treading is the "spread", and so it will be in your best interest to obtain a firm understanding of what spread is and how it is calculated.
When forex trading is done, one purchases one currency essential with another currency. Each currency has a "bid" price and a "ask" price.
The spread is calculated as the difference between the bid price and the ask price. A portion of the spread is kept by your forex broker, similar to the commission paid to a stock broker.
If you do frequent trades, you can see that the spread will add up quickly and will cut into your profits. So you should always calculate the cost of the spread in any contemplated trading decision you make.
As you might imagine, the broker's fee is built into the spread, and what you might not realize is there are different approaches to computing the spread.
First, your broker might charge a fixed spread.
Second, you may be charged a variable spread.
The third possibility is commission on a basis of percentage of the spread.
There are situations and strategies that may call for one particular approach over another. What works for one situation may not for another. Over time, you will get a feel for which fee structure makes the most sense with your overall investing strategy.
The mechanics of how the spread are computed can make a difference, although in the long run the choice a forex broker is more important to your ongoing profitability. The reason for this is easy to comprehend if you consider that a good broker is going to want to keep you as a client for as long as possible, and therefore should be looking for ways to keep you satisfied.
If you think about it, you will want your broker to be financially stable and have a history of providing good service. So while the amount and computational method of the spread are important, put that into the context of the total service offered by your broker.
Be aware that some unscrupulous brokers will mislead beginning forex traders by telling them there are no fees if you use their service. It should be obvious that this is impossible, but sometimes new traders will fall for it. By acting on greed, they can end up getting charged more than they should.
A good forex broker will be upfront about what the fees are and how they are calculated. A forex trader who wants to be successful long term will want his or her broker to be adequately compensated
The forex spread is one piece of the puzzle you should master if you want to become a successful forex trader.
When forex trading is done, one purchases one currency essential with another currency. Each currency has a "bid" price and a "ask" price.
The spread is calculated as the difference between the bid price and the ask price. A portion of the spread is kept by your forex broker, similar to the commission paid to a stock broker.
If you do frequent trades, you can see that the spread will add up quickly and will cut into your profits. So you should always calculate the cost of the spread in any contemplated trading decision you make.
As you might imagine, the broker's fee is built into the spread, and what you might not realize is there are different approaches to computing the spread.
First, your broker might charge a fixed spread.
Second, you may be charged a variable spread.
The third possibility is commission on a basis of percentage of the spread.
There are situations and strategies that may call for one particular approach over another. What works for one situation may not for another. Over time, you will get a feel for which fee structure makes the most sense with your overall investing strategy.
The mechanics of how the spread are computed can make a difference, although in the long run the choice a forex broker is more important to your ongoing profitability. The reason for this is easy to comprehend if you consider that a good broker is going to want to keep you as a client for as long as possible, and therefore should be looking for ways to keep you satisfied.
If you think about it, you will want your broker to be financially stable and have a history of providing good service. So while the amount and computational method of the spread are important, put that into the context of the total service offered by your broker.
Be aware that some unscrupulous brokers will mislead beginning forex traders by telling them there are no fees if you use their service. It should be obvious that this is impossible, but sometimes new traders will fall for it. By acting on greed, they can end up getting charged more than they should.
A good forex broker will be upfront about what the fees are and how they are calculated. A forex trader who wants to be successful long term will want his or her broker to be adequately compensated
The forex spread is one piece of the puzzle you should master if you want to become a successful forex trader.
Wednesday, January 28, 2009
Finding A Good Forex Broker
To trade forex, you need the services of a broker. Here are some tips to help you find a select a good broker.
1. Ask friends and colleagues for references. You may not have the luxury of having a trusted person to ask their advice on a broker. If you do, take advantage of that resource. A personal recommendation can cut way down on your research time and help you avoid making a bad decision.If the same broker is recommended more than once, obviously you will want to take that into consideration. You might decide to look no further.
2. Do online research. The internet is an excellent research tool, and you should use it to locate several contenders to serve as your broker. Compile a list of brokers that look promising, and make a comparison chart to easily compare "apples to apples".
3. Using your comparison chart, select the three or four brokers that seem to most closely match your needs.Some brokers will naturally appeal to the needs of certain traders more than others. One potentially important factor is the number and usefulness of the "helps" that each offers. Does the company maintain a forum, and is it actively used? Does the trading interface seem easy to use? What sort of research tools do they offer, if any?
4. Once you have narrowed down your list, do further investigation on your final contenders. Consider calling them on the phone. Ask yourself if they offer enough services to help you with your forex business. Request a free trial so you can get to know their company; at the very least, ask if they have a demo account for you to try.If you're not a native English speaker, consider whether or not the broker offers services in your main language. This can become a very important factor in making your decision. As you learn and improve your forex trading skills, you don't want to struggle with a language barrier too.
5. After you have selected your broker, it is not out the question to keep tabs on other brokers. You are not "married" to any given broker that you pick. If you want, you can invest a certain amount of time every couple of months to see if any brokers have expanded their line of services or appeal to your needs better.
After all, you will be spending a considerable amount of money with the broker, paying for their services through the spread prices, so you will likely want some assurance over time that you are getting the best return on your investment.
Similarly, consider periodically evaluating your experience with your broker. Ask yourself if there any "holes" in the services they have provided to you. Are there any additional services which would help you make better trades? If the answer is yes, that is a clue for specific features you may want to seek out in a different broker at some time in the future.
Selecting a forex broker is one of the most important decisions you make in your forex business, so take the time to do it right.
1. Ask friends and colleagues for references. You may not have the luxury of having a trusted person to ask their advice on a broker. If you do, take advantage of that resource. A personal recommendation can cut way down on your research time and help you avoid making a bad decision.If the same broker is recommended more than once, obviously you will want to take that into consideration. You might decide to look no further.
2. Do online research. The internet is an excellent research tool, and you should use it to locate several contenders to serve as your broker. Compile a list of brokers that look promising, and make a comparison chart to easily compare "apples to apples".
3. Using your comparison chart, select the three or four brokers that seem to most closely match your needs.Some brokers will naturally appeal to the needs of certain traders more than others. One potentially important factor is the number and usefulness of the "helps" that each offers. Does the company maintain a forum, and is it actively used? Does the trading interface seem easy to use? What sort of research tools do they offer, if any?
4. Once you have narrowed down your list, do further investigation on your final contenders. Consider calling them on the phone. Ask yourself if they offer enough services to help you with your forex business. Request a free trial so you can get to know their company; at the very least, ask if they have a demo account for you to try.If you're not a native English speaker, consider whether or not the broker offers services in your main language. This can become a very important factor in making your decision. As you learn and improve your forex trading skills, you don't want to struggle with a language barrier too.
5. After you have selected your broker, it is not out the question to keep tabs on other brokers. You are not "married" to any given broker that you pick. If you want, you can invest a certain amount of time every couple of months to see if any brokers have expanded their line of services or appeal to your needs better.
After all, you will be spending a considerable amount of money with the broker, paying for their services through the spread prices, so you will likely want some assurance over time that you are getting the best return on your investment.
Similarly, consider periodically evaluating your experience with your broker. Ask yourself if there any "holes" in the services they have provided to you. Are there any additional services which would help you make better trades? If the answer is yes, that is a clue for specific features you may want to seek out in a different broker at some time in the future.
Selecting a forex broker is one of the most important decisions you make in your forex business, so take the time to do it right.
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