Trading Success Begins With Your Choice of Broker

In this press release, the topic of finding a good, reliable forex broker is handled with much frankness. The bottom line is to not get ripped off by unreputable companies. Have a look at this article about what brokers actually do and what pitfalls to avoid when choosing a broker. [Editor's Note]

Opening an account with a broker should be the first step toward generating trading profits. However... if a person makes a poor choice of broker, they can wave goodbye to profit. (PRWEB)

September 26, 2005 -- Opening an account with a broker should be the first step toward generating trading profits.

However! Make a poor choice of broker and wave goodbye to trading profits - FOREVER How many people spend years looking for their dream home and then spend just hours organizing a mortgage, the result too often an uncompetitive interest rate at best. Prospective traders will spend months… * Paper trading * Honing their new skill * Arranging venture capital for use as a trading bank * Ensuring a good risk to reward ratio * Testing different staking plans

Having spent hours testing, they then rush in without performing due diligence and open an account with a “best broker on the Internet” - it says so on their home page. In no time at all another dream lays in shattered pieces. Clocking back into work, the supervisor smugly reminds them how lucky they are that the position was held open for their return. Yet another visitor to the trading arena returns to the humdrum life they were desperate to escape.

Act in Haste, Repent At Leisure

So what went wrong? Why were trades stopped out before reaching the stop loss? Why, were trades not filled at the price on offer? Why was there slippage?

Turn back the clock and … …the importance of choosing the right broker would become all too obvious. You owe the broker nothing at any time The forex broker performs a number of very important roles for the average speculative trader and is handsomely rewarded for doing so. It’s important to realise that they are not government agencies, industry bodies or commissions - they are profit-making businesses. Their sole objective is to make profit. That profit is provided by customers. They are not rare and there is very real competition between them for new business.

Customers owe them nothing at any time and for the profit they provide them every day and should receive the best possible service. What exactly do brokers provide? First of all they provide ‘counterparts’ - punters willing to take what their customers are selling, or sell what customers wish to buy. Most of them actually guarantee that they’ll find such a counterpart, up to a certain level of business. When a trade is placed it will be actioned.

Secondly, they provide enhanced liquidity, or leverage. They turn cents into dollars’ worth of trading power. Without that customers would be forced to have an account equal to the size of trades placed.

Thirdly, they provide a trading platform - a means by which buy and sell trades are placed.

Fourthly, they provide a stop loss function to limit the potential loss on trades placed.

Finally, they provide accurate pricing and a means by which to chart the movement of that price over time.

That’s actually one heck of a lot of service and the best brokers truly do earn their money. However - the worst can turn potential profits into losses!

Thorough research is a must. Research into potential brokers should be divided into sub categories: The Price is Right Whenever possible avoid using third party charting platforms and data feeds. Apart from most broker packages now being very sophisticated, there is a very real danger of trading incorrect numbers. The quality of a broker’s data feed and charting package is a vital consideration, therefore taking advantage of the usual free demo is a priority.

Avoid Losing Profits

In forex, biggest is best, although good new companies do start up all the time. Priority should be given to security rather than innovation. To ensure a long and mutually agreeable trading relationship, always telephone the customer services department of a prospective broker. The main intention in doing so is to gain some flavour of the company - how they relate to customers and the attitude of the staff. Even little things like how long they’ll allow prospective customers to use their free trial. One month is usually sufficient - one week is not.

The Guarantee

The big question, though, is how big is their stop and limit guarantee. As with futures trading, the one thing to avoid is slippage - a fill at a price other than what was intended - and the guarantee states exactly how big the trade can be before slippage is likely to occur. You’ll see some huge numbers mentioned in terms of guarantees but a little explanation first to give you an idea of what those numbers actually mean.

Forex is traded in ‘lots’, and one lot of one of the largest currency pairs, the Pound Sterling/US Dollar (GBPUSD) is worth $100,000. Because of leverage just $1000 will give the trader a single lot of trading power using the standard 100:1 multiple (up to 200:1 on mini lots).

Now, a common guarantee is around $2 million to $4 million. That doesn’t mean $2 - $4 million of actual money, but $2 - $4 million in ‘lot’ money, so divide it by 100 for the true value. $4 million of guarantee means that individuals can trade up to 40 lots on any one trade before slippage on fills might occur. The best brokers offer up to $20 million of guarantee - that’s 200 lots per trade and a sizeable sum of exposure.

Why so generous? It comes back to market competition. These companies want business and they’re willing to be suitably lavish with the extras to get it. Traders with a sizeable deposit should not be afraid to barter for enhancements, like an improved guarantee or better spread.

There is much to consider, however get this first step right and profits can be achieved in the very first week. Head Trader Forex-Uncovered