About Currency Trading Brokers

If you want to trade currency, investigate currency trading brokers. Forex is the market for currency. Not all currency trading brokers are equal. Each currency broker has its own types of charges. Some charge a commission to their clients and others depend on the spread for their income. There are also differences in the amounts of leveraging and the amount of money you need before you can leverage your account.

Identification

You need to understand two important terms, the spread and the pip, before you select a currency trading brokers. The spread is the difference between the sell price and the buy price and it is expressed in pips. Each pip shows as a 1/100 of 1 percent difference. 1.2500/02 is the difference between 1.2500 and 1.2502, or 2 pips. This is one way a broker charges you for trading. They buy the currency for 1.25 and sell it to you for 1.2505. The number of pips between the buy and sell is your cost. The more pips in their spread, the lower your profit.

Size

Information on the size of the trade is also important. The Forex market trades in lots. A standard lot is 100,000 units of currency and the standard value of the pip for the EUR/USD, Euro and US dollar trade is $10 for this size. The mini lot is 10,000 units and its pip value is $1. Micro lots are 1,000 units with a pip value of $0.10.

Function

Look for accounts that have not only leveraging but guaranteed limited risk. These accounts allow you to leverage 200 to 1, which means that you need about 1/2 percent of the position value. This allows you to buy larger lots. 10,000 units would only cost $50 per lot. If the account drops below the margin, the accounts with the limited risk guarantee allow the brokers to sell all positions. This way, it limits the money at risk to the amount in the account. If you use leverage with no risk guarantee, you could put a substantial amount of money at risk.

Types

Decide whether you want to deal with a market maker. These individual brokerage houses accept all sizes of accounts. There are two types of market makers: ones with dealing desks and ones without. The most advantageous is the Forex currency trading broker with no dealing desk, NDD, and makes matches via a matching engine. They simply match orders and don't trade against you to drive up prices. There usually isn't a commission but a higher spread. You also have the choice of an ECN broker. ECN stands for Electronic Communications Network and includes the Interbank Forex traders. Most of the Forex ECN traders have larger trade minimums. These brokers are extremely reliable and usually have the smallest spread.

Warning

Not all brokers are regulated. Each country has its own regulatory agencies and the Forex broker list at the web site if they're regulated. Until May 2008, in the United States, the SEC (Securities and Exchange Commission), the Federal Depository Insurance Corporation, the Federal Reserve System and the Office of the Comptroller watched its country's Forex trader, but there was no single agency mandated. In the U.S., Congress expanded the Commodity Exchange Act to include Forex brokers and now the US requires that Forex brokers register and become members of the National Futures Association. The rules for trading are from the National Futures Association and it's another good place to find a registered broker. Hundreds of millions of dollars are lost to traders who fall prey to scams by non-regulated brokers, according to the Commodity Futures Trading Commission.

Prevention/Solution

Find the right Forex currency trading broker for your needs. Some of the brokers accept Paypal, have lower account minimums and vary in the cost of the trade. Two lists in the resource area provide information on various currency trading brokers. They include the size of the minimum account, the method of receiving money to fund the account, whether the account is regulated or not and the charges for trading. Investigate several different currency trading brokers before you select one.

Resources

• EarnForex list of brokers with information on each
• GoForex list of brokers with additional information