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Forex Brokers: What You Get For Your Money
By Wade Robins
The majority of the brokers do not charge commissions. They are remunerated by revenues from their activities as currency dealers, including earnings from buying, selling, interest on deposited funds, converting and holding currencies, and rollover fees.
If you think that, because brokers do not charge commissions, they are working for free, you need to go back to school. brokers make their money from you, by selling you currency at one price and buying it back from you at a lower one. The difference in the prices is known as the “spread” and it can mount in a hurry. How can you determine a “spread?”
Understanding The Spread
You may have thought a “pip” meant is a fruit seed, and you would have been right. But in the 21st century, the “pip” is far more widely known as the smallest monetary increment, usually one one-hundredth of a percent. On the market, currencies are priced to the fourth decimal place, and that fourth decimal pace is the”pip.” It’s also known as a “basis point.”
Forex brokers make their livings in pips. The number of pips they charge per trade is known as their spread. Some brokers charge the same spread no matter what the trade, and other brokers charge a variable spread. While a variable spread can look enticingly small in a slow market, it will not be available when the trading begins to fluctuate, because the broker will raise his spread.
You can hook up with brokers through major banks or investment firms. They are regulated by the Commodity Futures Trading Commission and they are registered with the Futures Commission Merchant. But the Internet has caused a proliferation on online brokers, who will provide traders the technology necessary to trade. They have opened the market to million of small investors who may lack the capital and understanding to have any
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What To Expect From Your Brokers
If you’re working with brokers, and you should be, your have the right to expect their offices to be available around the clock. The market never sleeps, and even if you are placing a trade in the middle of the day, it might be the middle of the in the hemisphere where your broker’s office is located.
If you need to get out of your trade in a hurry, you should be able to depend on someone being at the other end of the phone. And by the way, always make certain with your brokers that you can close a position over the phone. If not, a power outage hitting your PC, or a failed Internet connection can spell disaster.
Before you sign on with any firm of brokers, take the time to do some background checking. Not all brokers have the financial underpinnings to hold money in reserve if their trades go wrong and their customers want to cleanout their trading accounts. Your broker should be open about his company’s financial condition and history, and be able to provide documentation of his claims. If he can’t or won’t, take your business elsewhere.
And before you commit any money to any brokers, use their online sample trading features to decide which programs are best suited to your trading style. It costs nothing, and will give you confidence that in the fast moving world of trading you’ll be able to keep up. |
