4 Concerns That Your Chosen Fx Broker Should Answer Before You Decide To Start An Account

Understanding the business model of your Forex broker is very important before you decide to transact business with them

. The questions discussed below are designed to help you understand your broker.

There are many Forex brokers out there in the market ready to accept your money. The process of choosing the right broker is not easy. Partly this happens because traders know little about them and few have hard about them. The truth of the matter is that not all brokers offer the same service; most of them will entice you with nice marketing words but don't deliver their promise. This article discusses questions that will greatly help you understand the broker in question before registering with them. These questions are specifically developed to guide you through the process of choosing the right Forex broker.

Who Is Responsible For Executing Your Trades?

Since not all Forex brokers use the same method to quote rates, you must exactly know who will execute your orders. Forex brokers use only two methods which is either Dealing Desk or No Dealing Desk method. Under dealing desk option, the Forex broker creates the appropriate pricing and executes the orders themselves. Here, the broker uses traditionally fixed spreads which makes it higher compared to the average variable spreads. With No Dealing Desk, several competing prices are streamed by multiple banks for the Forex broker to execute. In this case, your order is executed by the banks. No restrictions are imposed on economic events and trading news.

Do They Offer Any Rollover?

A rollover is an interest earned on Forex positions which is held overnight. Rollover can vary depending on the interest rates difference that exists between a currency pair. Movement of prices makes rollover to fluctuate daily. When you sell a currency pair with a higher interest you experienced a negative rollover and are forced to pay the interest. Likewise, you will be paid interest when you buy currency pair with higher interest, a situation known as positive rollover. Unlike the negative rollovers, positive rollovers are not offered by most Forex brokers.

Is There Allowance For Hedging?

This is one of the most important questions that your broker should answer comprehensively. They should let you know if any, the kind of hedging they allow. Through hedging, you can simultaneously hold SELL and BUY positions of the same currency pair. Hedging is a useful method for creating support and finding resistance levels when the market conditions are uncertain. Hedging allows you to identify levels to take significant price action. However, hedging do not significant limit risks. You can also find our self in the losing on both sides of the hedged positions.

The Level Of Leverage Offered

The degree of leverage that your Forex broker offers is another important consideration that you must make. Opportunity to trade on leveraged basis is one of the best things you will enjoy in Forex market. This actually gives you ability to control better position with little funds in your account. The levels of leverage vary significantly depending on the broke itself. Some Forex brokers are too conservative offering little leverage between 2:1 and 10:1. However, most of them offer massive leverage up to 400:1. High leverage allows the possibility of aggressive trading. However, the higher the leverage the higher the risks involved.

Conclusion

There are a number of questions to consider when looking for a good Forex broker to trust with your fund. The questions we have discussed above are just a few to shed lights which are considered very important. There are several other questions that you should consider including the level of spreads and which of them are advertised, the allowance for scalping, additional fees, restrictions on account, good customer support, calculation and payment of interests amongst others. The size of the Forex broker also matters. Forex brokers transacting large volumes of trades are known to enjoy better pricing and execution.

by: Ownen Moore

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