Online Forex Broker - How To Recognize The One That You Need

Online forex broker is a firm that accommodate traders with online trading platform to buy or sell foreign currencies. As a trader, you will use these brokers services to access the forex market 24/5. Thus, selecting the right forex broker is a very important step if you want to take part in forex global trading.

These brokers are usually compensated through the bid-ask spread of a currency pair. For example: EUR/USD bid price is 1.4613 and ask price is 1.4616. If a trader makes entry to the market at this point he can either buy at price 1.4616 (ask) or sell at price 1.4613 (bid). In this case the spread is 4616-4613=3 pips.

Different online forex broker will have different policies about the spread for each currency pair, so you must read this information first, particularly your favorite currency pairs. For widely used currency pairs like EUR/CHF, GBP/USD, or EUR/USD, it is pretty common to have low spread 2-4 pips. But other currency pairs like CAD/JPY, EUR/CAD, and CHF/JPY have higher spread of 8-17 pips.

Even though the majority of forex brokers make their incomes through spread, there are also brokers that charge commission fee per trade. This fee is charged per lot. One lot equal to 10,000 units of currency; for example: 10,000 units are equal to USD 10,000; EUR 10,000; GBP 10,000; etc.

So, do you really need $10,000 in order to enter forex trading? No; the current forex market is using leverage system. A 200:1 leverage implies that you just need to deposit 10,000 / 200 = $50 to be able to trade 10,000 units or one lot. In other words, if you use a forex broker that charges $40 per lot, you will see $40 missing from your profit each time you trade.

When you decide to use an online forex broker, you will get access to their online trading platform. These platform will give you access to live price, chart, news, put take profit or stop loss order, execute a trade, and various other resources to support your everyday trading.

Based on experience, not every trader are comfortable with certain trading platform, so it is a wise decision to open a practice account first and test the trading platform for a period of time. I suggest you test a few trading platforms simultaneously and see which one suit you the best. Remember to pay attention to how quick the platform executes your order.

Opening a practice account has other uses too. If you are an experienced trader and possess certain strategies, you should test if the platform supports it or not; for example: hedging.

Hedge a trade is have buy and sell trades in the same currency open simultaneously. It can be used by a trader to lock his loss position.

Example: a trader buy EUR at 1.4815, then the price dropped to 1.4785. Rather than closing the lose trade, he sell EUR for 1.4785 and thus lock the loss at 30 pips. Then he waits and see the market movements and hopes to avoid loss by closing the two positions at the right price. This strategy is very risky and most traders will just go for the stop loss order.

So here are what to check on an online forex broker:

1. How they gain their compensation; is it through spread? Is it through spread and commission fees? Confirm the spread for your preferable currency pairs and if they charge commission, check the commission rate per lot.

2. Check the trading platform; make sure it suit you, provide various resources for your trading, execute order quickly, and doesn’t go down too often.

3. If you have particular strategies that not commonly used, check if the trading platform supports the strategies or not.

4. If you are planning to use Forex Robot, ask them first whether they allow forex robot or not. This can be done quickly through the use of the live chat feature. There are some great robots at the market currently and you might decide to utilize one of them at some point, so I suggest you take the one that allows it.

5. Check if they are regulated under an official financial authority like NFA or FSA.

Pick the credible online forex broker doesn't has to be a difficult task; what you need to do is test their trading platform and ask the rest of the questions via live chat or email.

Check out top forex broker to discover trusted brokers that can help you to success in forex trading. Moreover, learn how to use your broker free automatic trading software at automatic forex trading system.