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Tuesday, December 2, 2008

is Broker-Bashing one Gigantic Witch Hunt?:

Choose your forex broker accordingly: If you use forex broker competition with a dealing desk then you are more likely (in theory) to experience slippage than if you use an ECN style broker. It is likely that a human will actually be matching and filling orders on a dealing desk which leaves you open to an added delay, especially at busy times. forex broker competition doesn't have this limitation and that fraction of a second saved can make a huge difference. In conclusion, if you are actively trading at busy times then forex broker is probably most suited to your needs. On the other hand if you trade infrequently or you have a small account and cannot afford the commission fees that forex brokers charge then a broker with a dealing desk may be adequate.

My forex Broker is Trading Against Me

This is an extremely common complaint that has lead to the conspiracy theory that most forex brokers competition actually want you to lose your money because they are on the other side of your trades. Let us step away from this theory for the moment and consider the fact that there is ALWAYS someone on the other side of your trades. For you to go short someone else must go long and vice versa so someone somewhere always wants you to lose! Now, some forex brokers competition claim that they match client orders at the dealing desk while others use their dealing desk to offset their clients' trades with their own overall position in the market, which is known as hedging. If forex broker competitive is perfectly hedged then they simply collect the spread that you pay them (which is greater than the spread they pay in the interbank market) and that is their profit. The conspiracy theory has come from the notion that most traders lose and so it would be more beneficial for forex brokers to trade in the opposite direction to their clients rather than go in the same direction and hedge themselves. Experiences of delayed orders, slippage and stop hunting have added fuel to this fire because they can be easily explained as forex brokers competitive stealing your money rather than potentially legitimate problems incurred at busy trading times.

Conclusion

In this article we have attempted to point out to you alternatives to forex broker malpractice theories and a few ways in which you can minimise their effects. If you are a firm believer that your forex broker competition is trading against you and wants you to lose then you are developing a potentially self-destructive frame of mind. This belief may prevent you from identifying problems closer to home such as trading psychology and strategy inadequacies. But the fact remains that if you are unhappy with your forex broker or you are experiencing excessive slippage, multiple re-quotes, poor customer service, possible stop hunting, platform freezing and held orders then you should change forex brokers competitive. At the end of the day the reasons for poor service are of secondary importance behind the effect it has on your trading. It may be that your forex broker is honest but technologically inept or it may be that you are the victim of a bucket shop but try to keep your complaints within the context of market dynamics. If none of the coping strategies listed above make any positive difference then it is definitely time to find a new broker.

Choosing A Forex Broker:

With currency trading becoming ever more popular, the number of forex brokers competiton is growing at a rapid rate. What should one look at when deciding which broker to open an account with? These are the important points to consider.

Spread

Because currencies, unlike futures and stocks, are not traded through a central exchange, the spread can be different depending on the forex broker you use, so it's well worth checking a few out before you open an account. Most forex brokers competiton 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 forex brokers competition 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 favor before you start to make a profit. Fixed spreads are generally slightly wider than the variable spreads are when at their narrowest, but over the long term fixed can be safer.

Execution

Some forex brokers competition will show live prices on their trading platform, but will they honor them 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 now, not sit around waiting for ten minutes whilst your order is confirmed!

Trading Platform

Good trading software will show live prices that you can actually trade at, not just indicative quotes. It will 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.

Finally, before opening an account do a little homework and find out about the company. Forex broker's competition is regulated, 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 steer clear.