How Technology is Changing the Way Of Currency Trading
Forex brokers like XM.COM are also known as market makers. These are firms that hold certain shares to make trading easier for their clients. Once an order is placed, the shares they have stored are traded. In the simplest terms, they give you access to the forex markets while offering security. While each broker comes with its own pros and cons, there are still a certain set of questions to need to ask before choosing one.
First, find out where the company is incorporated.
If you are looking for an online host, this is of extreme importance. You want to find a broker that is in your country of origin in addition to having ties in at least one other major city. This is to keep your money safe in the event of bankruptcy. If they are out of your country’s jurisdiction, you lose almost all ability to persecute them in the event they take your money. Some, however, specifically look for out of country brokers since they will offer higher leverages.
Second, research if they are regulated.
If they are, are they regulated in every country they are in? In the United States, for instance, the legitimate businesses are registered futures commission merchants, or FCMs and are held to extremely strict guidelines, having to send in monthly reports for regulation standards. While frustrating for some, this only means a high level of transparency to make sure you invest in a company with high standards. On top of this, they must also be members of the National Futures Association, or NFA. The more they are regulated, the more legitimate their practices are.
Third, determine how large the broker is.
If they are in multiple countries, chances are they are running a very successful operation. Likewise, larger places will have larger employee numbers, meaning you’ll have to spend less time waiting for customer service should you encounter a problem. Larger also means better resources for you to take advantage of. From seminars to tighter spreads, bigger can be better. Once you’ve figured this out, read up on their history. Determine the date they were founded. While this doesn’t give a lot of information, it can verify that the establishment is both old and stable.
Finally, test out their customer service line.
Since the forex is open all of the time, the broker should have a means to reach a live person at any time, day or night. They should also have the option of helping you in your native language. Either way, do be prepared to have access to fewer customer service options if you don’t have a standard spread.
- Introducing brokers are those that accept orders to buy and sell forex but don’t actually accept any money from customers to place the orders.
- This means they have a direct relationship with you but then partner with a third party to manage the financial aspect of it. For those in the U.S., only look into introducing brokers who are registered as such through the NFA and CFTC. Because they are so specialize, they are known to have exceptional customer service.
- Though many take commission from each trade, this comes back to the clients by way of rebates for each trade and other perks unavailable to usual forex brokers.
If you are interested in trading the contract for difference, or CFD, in oil and metal markets, be sure to read the fine print. This type of trading results in cash payments as opposed to delivering any physical goods. Because it is a bit different, not all forex brokers are open to it. Other times, the broker may simply have you open a second account. The reason this is an option is due to the simple fact that oil, metal and currency are deeply connected, causing the more advanced forex traders to branch out in this direction.
Sometimes hedges are involved
These happen when a trader plans to trade while simultaneously protecting their position against negative fluctuations in currency rates. Those in a long position generally use hedges to protect against downside and upside risks. The most common one offered is known as direct hedging. Simply put, it means opening opposing trades at the same time. The net profit may be zero but the intention is to wait until one alters favorably. Once that happens, the other trade is closed. Many brokers state if this is possible. Others may even provide more advanced means known as forex options.
Finally, scalping is the term used to describe extremely short-term trades done on the forex markets. Lasting anywhere from mere seconds to a few minutes, they take out tiny pieces on a regular and frequent basis. Due to this, scalpers employ small chart intervals. The downside to this is that since usual winning trades are small to begin with, even one or two losses can completely destroy the majority of your wins. Even so, its fast-paced strategy really appeals to some. Simply find a broker who is known for fast, reliable quotes and you’ll be ready to start.
What is a dealing desk?
The dealing desk is the location of the forex dealers’ brick and mortar establishment. They are the employees who specialize in dealing with certain currencies while offering customer service to the brokers’ clients. They are the ones that also execute the trades. The one downside to these desks are the re-quotes. Re-quotes are the rejection of a client’s initial order followed by a new price that is worse than the original which the client can either accept or reject. Because of the market’s quick pace and volatility in direct opposition to the increased time it takes to place and order that then needs to run through a dealing desk, this can happen many times, resulting in many losses.
Other brokers have no dealing desks and are abbreviated as NDDs. Most professional traders go this route since it gives them the power to access the market directly without any human go-betweens. These brokers are generally teamed with banks, financial institutions and other brokers to get you the most competitive bids and asks to make them more appealing than the deals the professionals at dealing desks offer. An automated process that has a computer in charge of picking optimum pricing, it is considered to be the most transparent form of foreign exchange trading and, therefore, fair to all those involved.