A Wealth of Online Forex Brokers Makes it Possible for Anyone to Enjoy Forex Trading
Why have so many people started Forex trading?
Before we go into a little more detail about the intricacies of the Forex market let’s look at why so many ordinary people have joined the world of trading Forex. Speak to any trader about Forex trading, ask them why they started and you’ll be given a number of different answers. On the whole, however, a common answer will be that they wanted to get a return on their investment. In other words, they were looking for a way to make some money. And what better reason could there be? We have to admit there have been some big winners as well as a number of traders who have made a career out of online Forex trading. However, we should point out there are no guarantees of success, as Forex is just another way to invest that has an inherent risk factor which many choose to ignore. Here at onlineFXbrokers.com however, we choose to be honest and keep all our readers informed of not just the good side but the negative points too. So, yes Forex trading can make you money, as well as put your savings at risk, but there are a number of other reasons traders choose to do it.
For many traders, it is simply an enjoyable way to spend some time, possibly because they see it as a form of gambling. For this section of the trading community, betting on a winning number, or correctly predicting the movement of a particular currency can be rather exciting. Others gain a lot of personal satisfaction, especially if they have devised their own trading system and achieved a level of success. While there are others that find it very interesting. Possibly because it can involve watching the world markets, global economies and keeping up with the news.
Forex trading also offers substantial opportunities for diversification. Which can be another reason for its popularity. You must have heard the idiom “Never put all your eggs in one basket”. Forex trading is one form of investment that allows you to take heed of this advice because it involves investing in different classes of assets and sectors, as well as the opportunity to trade in a number of different currencies, rather than just one.
And there are plenty more reasons including:
- It is quick and easy to open a trading account with one of the best Forex brokers, and it doesn’t have to cost an arm and a leg. A couple of hundred dollars is more than enough to get you started and opening a trading account will only take a few minutes of your time. In fact, with the wealth of Forex bonuses available you can start trading with even less of your hard earned cash.
- The number of top Forex brokers to choose from is vast, and we’ll be featuring a number of them in our review section.
- You don’t need to be a mathematical genius or a financial whizz in order to enjoy working with a top Forex broker, and the best will do all they can to help you increase your knowledge of trading.
- There is no need to devote your entire life to trading. In fact, with the help of Forex robots very little daily interaction will be required. How much time you want to spend trading is really a personal thing.
- The charges and fees levied by FX brokers aren’t over the top. Many investors consider them to be very reasonable.
As you can see, there are a number of valid reasons for the increased interest in online Forex trading, so let’s look at what is involved for those of you who are interested in becoming part of the Forex community.
A brief introduction to Forex trading
Forex is another way of saying the foreign exchange market and is also referred to as FX and the currency market. Before you start looking for a partner to help with your endeavors and considering some of the best Forex sites, it’s going to be good to understand how the market works.
The foreign exchange market is where the trading of currencies takes place. Participants include large international banks, Financial institutions, commercial companies, hedge fund companies, foreign exchange companies, money transfer/remittance companies, along with brokers and dealers, and traders like you. Unlike stock exchanges, there is no centralized market and trading takes place electronically over the counter (OTC). The market is open 24 hours a day, five and a half days a week, with traders, brokers and other participants linked via a variety of computer networks.
The world of commerce relies very heavily on being able to exchange currencies, which is certainly one of the main reasons it has become the largest and most liquid financial markets today. You might be interested to learn that on average, more than 92,000 billion US dollars worth of trades take place every day.
While online Forex trading is a relatively new idea, foreign currencies have been exchanged for centuries. However, a more formalized monetary system wasn’t introduced until 1875.
Important events in the history of the Forex market
The most significant event in the evolution of the foreign exchange market was the introduction of the gold standard in 1875. Up until then, the value of a particular currency had always been very unstable. Introducing the gold standard meant that individual countries could attach an amount of their currency to an ounce of gold, leading to the changing price of gold becoming the standard means of currency exchange.
During World War I the use of the gold standard fell by the wayside, as the major European powers didn’t have enough gold reserves to exchange for the currency that was being printed in vast amounts. So much currency was being printed to pay for large military projects that were deemed important at the time. When World War I ended the gold standard was revived, but the onset of World War II saw its demise once again. Gold, however, has never lost its monetary value and is still used today as the ultimate form of payment.
Another important milestone in the history of Forex came about in 1944 when the Bretton Woods System was introduced. A number of countries came together for the Bretton Woods Conference in order to regulate the international monetary and financial order following WWII. Held in New Hampshire, it was attended by 730 delegates from all 44 Allied nations. The system laid out the rules for financial and commercial relations between the US, Canada, Western Europe, Australia, and Japan. The IMF (International Monetary Fund), and the International Bank for Reconstruction and Development (IBRD) were also created, which are bodies that today form part of the World Bank Group. The basis of the Bretton Woods System was for gold to be replaced by the US dollar as the reserve currency and the only one that would be backed by gold. However, the US decided in 1971, that it didn’t want to use the system because it was no longer willing to exchange gold for foreign reserves of US dollars. Eventually, this led to floating foreign exchange rates being used and accepted almost everywhere.
Now you’ve had a little insight into how FX trading all came about and the origins of the FX market, it’s time to consider the major participants.
The major participants in the world of Forex trading
The Forex market is different from the stock market in that there are a number of participants, all of which choose to take part for a number of different reasons.
Governments and central banks – These play a major role in the Forex market, but their aim is not to make a profit. Currencies are traded in order to improve economic conditions in their own country or to try and prevent or correct economic or financial imbalances.
Investment and commercial banks – These make up another large section of the Forex community. There are a number of reasons they choose to trade currencies. Either as a service to their commercial, deposit and lending customers. Or to participate for hedging and speculative purposes on their own behalf. These types of trading make up more than half of all transactions. Professional traders working for these banks trade on credit lines that banks extend to each other. Otherwise known as the interbank Forex market. All the large banks that deal with each other are on the whole responsible for the exchange rates that traders follow and Forex brokers quote on their systems and trading platforms.
Hedge Funds – It has become common practice for Hedge Funds to allocate sections of their portfolios to speculate on the FX market because it has the potential to be very liquid. Hedge Funds are also able to make use of higher leverage than is normally found in equity markets.
Businesses – Not all businesses restrict their trade to their own country which means there is often a need to convert currencies. Billions of dollars are traded on a daily basis in order to enable trades to take place. But businesses are also able to take advantage of the Forex market in another way. Exchange rates have a tendency to fluctuate and it can be difficult for a business to know how much it may have to pay in the future for goods or services from another country. One way this can be overcome is by employing a hedging strategy that locks in a specific exchange rate in the future, and thereby remove the risk.
Individual investors and speculators – When investors and speculators want to deal in a foreign investment they make use of foreign currency exchange, whether it’s equities, bonds, real estate, or bank deposits. It is also used in an attempt to benefit from currency exchange market movements. This section of the markets includes retail traders just like you.
Forex brokers – Forex brokers usually act on behalf of others by getting the best possible prices for any currency pair. We’ll be sharing some reviews of the best ones out there to choose from, as well as providing you with an online Forex brokers list for your convenience. Interbank brokers usually charge a small commission on every trade. Retail Forex brokers either charge a commission or make their money by lowering the bid or raising the offer side of the market. In other words, they make their money via the spread.
Consumers and travelers – When you purchase goods in another country or online you will be making use of the foreign currency market. When you travel to another country and exchange currencies you are also participating in the Forex market.
The main participant you need to be concerned with is the best Forex broker. And there are a number to choose from.
Different types of Forex broker
Forex brokers come in all shapes and sizes. Depending on your needs you should have no problem finding one that suits you. As well as giving you a list of the best online Forex brokers we’ll also be writing some Forex reviews. So why don’t we start by helping you to understand the various types of Forex broker to choose from.
- Dealing desk broker – Essentially this type of broker is a market maker. Otherwise referred to by the initials DD they provide traders with fixed spreads that can be above or below real market prices. This is how they make their money, rather than charging commission like other types of broker.
- No dealing desk broker – This type of broker is also known by the initials NDD, and offer traders direct access to the interbank market. This type of broker can be an ECN or STP broker, or a combination of both.
- ECN broker – An ECN broker is one who makes use of electronic communications networks (ECNs) in order to facilitate trades. Real-time order book information is provided and displayed, which leads to greater market transparency, as all participants are provided with the important information. An ECN broker will usually make their money by charging a commission, rather than through the spread.
- STP broker – STP stands for Straight Through Processing, which means that all transactions are computerized and processed instantly on the interbank market. There is no intervention from the broker.
You have now had all the background information given to you so we’ll move on to helping you pick the best Forex broker for your own trading needs.
A guide to picking your broker and the best Forex sites
When undertaking our research we came across a number of disgruntled traders who were having problems when trying to withdraw money from their trading accounts. So this led us to believe that the ease with which you can withdraw funds is an important concern. However, we should also point out that a large majority of the complaints centered around the various terms and conditions individual brokers attach to any withdrawal requests. One piece of advice we’ll share a number of times is to always make sure you read the various terms and conditions as these are often what trip traders up, especially beginners. There are a number of other things you should consider if you want to be certain to have easy access to your money.
- Check whether the broker has some form of deposit insurance
- Check the broker is licensed and regulated by your country’s financial regulator
- Research the broker’s financial reputation
- Check the rules and regulations where you live regarding legal and tax issues relating to Forex trading profits
Once you’ve found out this information it’s time to consider some other important factors
Commissions and spreads
There are various costs attached to Forex trading and brokers certainly don’t offer their services for free. Many brokers make their money via the spread, which is the difference between the buying and selling price of a currency pair. Ideally, you want a broker that offers competitive spreads, preferably as tight as possible. If you’re planning to trade in large volumes, however, you might be better off looking for a broker that charges a fixed commission rather than spreads.
Currency pairs offered
Each broker will have their own selection of currency pairs, although most will offer all the majors. In the beginning, you might be better sticking with these major currency pairs as they usually have the most competitive spreads or commissions. When you’ve got a little more Forex trading experience you’ll be able to consider more alternatives.
Quality of customer service
Forex trading is rarely smooth sailing, especially when you’re doing it online. So it makes sense to pick a broker that offers 24-hour customer service. You may find you have a technical problem, even with the best Forex sites. Or you may find something you don’t understand and need it explaining. We always consider the level of customer service when writing our broker reviews, and there are a number of Forex broker comparison sites you can use for further reference.
Speed of execution and reliability
The world of Forex trading is a fast-paced one, where decisions have to be made and orders placed in a few seconds. Therefore, it makes sense to pick a broker that enables you to react quickly to any changes in the market. Reliability is also another factor to consider as you don’t want the broker’s server to go down in the middle of your trade.
Trading platforms offered
MetaTrader 4 is by far the most popular trading platform, but there are also a number of brokers who offer their own in-house trading platform. We will always feature the different trading platforms used by brokers when writing our reviews, and after a little while, you may find you have a favorite. We’ll help you come to a decision by looking at the benefits and possible disadvantages of each. Basically, you should be looking for a trading platform that runs smoothly, is user-friendly and not too complicated to master.
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What it takes to be a successful Forex trader
We’ve been looking at some of the important factors to consider when you’re looking for a partner to assist you in your trading endeavors, but are you really sure you’ve got what it takes? Consider the following and you’ll soon have the answer.
- Why do you want to trade Forex and what are your goals? These are important questions to ask yourself before you consider opening an account with a broker. You need to have a clear goal in mind, otherwise, how are you going to work out how to get there? Once you’ve set your goal there are a number of trading styles to choose from, each with its own approach and attitude. Picking the right one will be important or trading will end up being very stressful, and ultimately lead to failure.
- Choose a system and stick with it. What are you going to need in order to help you make your trading decisions? And how are you planning to execute your trades? You might choose technical or fundamental analysis or a combination of both. You might take the advice of Expert Advisors, or hand the decision-making process over to a Forex trading robot. Whatever you decide, it’s important to stick with your choices, be consistent and give them a chance to work. But that doesn’t mean your system is set in stone. Forex markets are ever changing and you also have to be prepared to adapt.
- Limit your risks and be prepared for small losses. Much like any other form of investment, Forex trading has the potential to lose money. Therefore, it is best to only fund a trading account with money you can honestly spare. Don’t risk the money you use for day to day living, and definitely don’t take out a second mortgage in order to fund your Forex venture. You will hear countless stories of traders who have made it rich, but on the whole Forex trading is not a get rich quick investment, and in most cases, you’ll need to be prepared for the long haul before you realize any worthwhile profits.
Now you’ve got a good grounding in the world of Forex trading it’s time for you to learn more. Keep us as one of your favorites and we’ll make the experience far more enjoyable by giving you all the pertinent information to help you on your journey.