What Kind of Trader Are You? Most importantly, forex markets are always moving, providing an accessible and fundamental analysis for dummies forex exchange-rich trading environment. The key to evaluating any brokers is the speed and reliability of your trade executions.
Are you consistently able to trade at the price you’re trying for? If you’re trying to sell, and your trade request fails, and you’re offered a lower price, you’re probably being requoted. Requoting effectively means you’re trading on a wider spread than you bargained for. Find out exactly how your stop-loss or take-profit orders are filled. If so, are there any exceptions to such guarantees? What’s the policy for filling limit orders? Does the market bid price need to match the price of the limit order to sell, for example?
Are dealing spreads stable in all market conditions? Most forex brokers offer variable spreads these days. When market liquidity is high, the spreads will be tightest. During volatile market conditions and around major news events, spreads will naturally widen.
However, the amount of variability can really differ among brokers, so make sure you understand how wide spreads can go when the market’s really moving. Look on a broker’s website to see if they publish their execution statistics, which can give you more insight into their execution quality — including speed, the percent of trade requests that are successfully executed, and the opportunity for price improvement. Remember: Tight spreads are only as good as the execution that goes along with them. Most online forex brokerages provide trade executions without charging trade commissions. Instead, the broker is compensated by the price spread between the bid and the offer. A few brokers offer a commission-based pricing structure coupled with narrower trading spreads. How much leverage does the firm offer?
Too much of a good thing? In the case of leverage, yes. Over the past several years, the maximum leverage available to retail traders has been reduced by regulators. For example, in the United States, the maximum available leverage is 50:1. In some markets outside the United States, such as the United Kingdom and Australia, 200:1 leverage is available. Evaluate all the tools and resources offered by the firm.
Is the trading platform intuitive and easy to use? Do they provide live market commentary on a regular basis? What type of research does the firm provide? Are you able to receive rate alerts via e-mail, text message, or Twitter? Forex is a 24-hour market, so 24-hour support is a must. Can you access customer service firm by phone, e-mail, and chat? The quality of support can vary drastically from firm to firm, so be sure to experience it firsthand before opening an account.
Is the firm regulated, with solid financials? Management expertise is a key factor, because a trader’s end-user experience is dictated from the top and will be reflected in the firm’s dealing practices, execution quality, and so on. Review staff bios to evaluate the level of management and trading experience at the firm. If the brokerage doesn’t tell you who is running the show, it may be for a reason.
This is very important to understand if you want to trade currency as an investment. Get to know the major economic data reports from all the major economies. Understand the importance of expectations versus actual outcomes. Anticipate alternative outcomes to better gauge how the market is really reacting. Stay aware of the pricing in and pricing out of market expectations that occurs in advance of data and events. Factor incoming data and news into the major fundamental themes of interest-rate expectations, economic-growth prospects, inflation, and structural developments.
Be aware that technical and position-related themes can overwhelm the fundamentals. Always trade with a stop-loss order. Decide on the stop loss before you’re in the trade and don’t move it unless it’s to protect profits. Identify trade entry and exit levels in advance through technical analysis. Understand how each currency pair’s prices move and what drives the prices. Determine position size based on the trade setup and your financial risk-management plan.