Forex Trading - understanding commissions, spreads and trading costs

Forex Trading - understanding commissions, spreads and trading costs

The forex market is quickly becoming one of the most popular markets for trading. Not only are the experienced traders looking to this market to maximize their trading returns, but many new, individual investors are now able to trade the Forex market - just as they do stocks and futures.More and more individuals are seeing Forex not only as a new way to diversify their portfolio, but are also finding that it is becoming the most profitable component of their investments. And that’s because of the many advantages Forex offers over other markets like stocks or commodities. Here’s what you will typically see advertized about Forex:- Unparallelled liquidity. It is the largest financial market in the world by far. Almost $2 trillion being traded daily!- Excellent leverage potential.  Individual investors have access to leverage of 100:1 and even 200:1 - No Commissions - Low trading costs. And yes, the Forex market really does offer all these advantages. But the last two points above talk about costs, and that’s what we’d like to focus on in this article.  Like any trading, there are costs involved, and, while these may be much lower than they used to be, it is important to understand what those are.Let’s start by looking at stock trading, something that most of us investors are pretty familiar with.When trading stocks, most investors will have a trading account with a broker somewhere and will have investment funds deposited in that account. The broker will then execute the trades on behalf of the account holder, and of course, in return for providing that service, the broker will want to be compensated.With stocks, typically, the broker will earn a commission for executing the trade. They will charge either a fixed dollar amount per trade, or a dollar amount per share, or (most commonly) a scaled commission based on how big your trade is.And, they will charge it on both sides of the transaction. That is to say, when you buy the stock you get charged commission, AND then when you sell that same stock you get charged another commission.With Forex trading, the brokers constantly advertise "no commission". And, of course that’s true - except for a few brokers, who do charge a commission similar to stocks.But also, of course, the brokers aren’t performing their trading services for free. They too make money.The way they do that is by charging the investor a "spread". Simply put, the spread is the difference between the bid price and the ask price for the currency being traded.The broker will add this spread onto the price of the trade and keep it as their fee for trading.So, while it isn’t a commission per se, it behaves in practically the same way. It is just a little more hidden.The good news though is that typically this spread is only charged on one side of the transaction. In other words, you don’t pay the spread when you buy AND then again when you sell. It is usually only charged on the "buy" side of the trades.So the spread really is your primary cost of trading the Forex and you should pay attention to the details of what the different brokers offer.The spreads offered can vary pretty dramatically from broker to broker. And while it may not seem like much of a difference to be trading with a 5 pip spread vs a 4 pip spread, it actually can add up very quickly when you multiply it out by how many trades you make and how much money you’re trading. Think about it, 4 pips vs 5 pips is a difference of 25% on your trading costs.The other thing to recognize is that spreads can vary based on what currencies you’re trading and what type of account you open.Most brokers will give you different spreads for different currencies. The most popular currency pairs like the EURUSD or GBPUSD will typically have the lowest spreads, while currencies that have less demand will likely be traded with higher spreads.Be sure to think about what currencies you are most likely to be trading and find out what your spreads will be for those currencies. Also, some brokers will offer different spreads for different types of accounts. A mini account, for example, may be subject to higher spreads than a full contract account.And finally, because the spreads really are the difference between bid prices and ask prices as determined by the free market, it is important to recognize that they are not "guaranteed". Most brokers will tell you that there may be times during periods of low demand, or very active trading when the spreads widen and you will be charged that wider spread. These do tend to be rarer situations because the volume in the Forex market is so large and demand and supply are generally quite predictable. But they do occur, especially with some of the lesser traded currencies. So it’s important to be aware of that.In summary then, when trading Forex, understand that the "spread" is truly your most important consideration for trading costs. Spreads can vary significantly between brokers, account types and currencies traded. And small differences in the spread can really add up to thousands of dollars in trading costs over even just a few months.So be sure to consider carefully what currencies you are going to be trading, how frequently, and in what type of account and use those factors to help you decide which broker can offer you the best trading costs and allow you to keep more of your returns as net profits!


Thoughts on the Forex Market in August 2008

For the past two weeks, US dollar has surprised us with its great rally. I think one of the major reason for the rally is falling oil price. Another is that other countries seem to be in bad economy condition as well. So when the whole world is in trouble, the investment community always favours US.
I do not think this US dollar rally is sustainable. Some of my readers had asked me when this rally will end. I do not want to make guesses as this can be damaging in my trading. I prefer to react only when the charts tell me so.
If US dollar continue to be strong, I will be interested to buy USDJPY. If US dollar cools down, I will be interested to short USDCHF or USDCAD or Silver.
Besides the US crosses, I will be interested to short EURJPY on rebound. It had been easy money to borrow JPY to buy EUR for the past 7 years, but I think this trade has gone too far. I am making a BOLD prediction that we will not see EURJPY rising above the peak of 170 for the next 3 months.
Currently I had long 20,000 in EURGBP, I had lowered my stop to 0.7750. Both Europe and UK economies are weak, I see no reason for EURGBP to breakout of its sideway trading.
See here for the chart: http://binarytrading.blogspot.com/2008/08/some-thoughts.html
George Soros starts trading forex when he is 16 years old, when he reaches adult age he is already a forex guru. Trading skill is sharpen through practice, open a mini forex account with only US$100.

How To Make Money In Forex

Hundreds and thousands of people trade on the forex market these days. Gone are the days when only big multinational corporations, governments, banks or other financial institutions were the only entities which traded in forex. These days even individuals can trade and also make money in the lucrative forex market. The question of how to make money in forex stands answered these days, thanks to the advent of the internet.

The internet is full of useful resources from where anyone aspiring to become a forex trader can gain knowledge about the field. There are for instance numerous online tutorials which can train you on forex trading. In fact proper training is the first step towards becoming successful in the forex market. There are many who often neglect the importance of proper training, only to end up making huge losses. It is therefore important that anyone who is pondering over the question, how to make money in forex, undergoes professional training.

Although the earning potential in forex is limitless, the entire field can seem confusing, especially to beginners. After hearing all the terminologies and looking at the hectic pace at which the trading takes place, they may be often wondering as to how to make money in forex. It is always preferable for beginners to start off with smaller accounts. They can first of all get a hang of the market and learn the finer nuances. Once they gain sufficient knowledge of the field they can then graduate on to bigger accounts.

Patience is the key to making money in the forex market. The forex market as we all know is the largest market in the world. It does take time to get acclimatized with the working of this huge market. One need not get dejected if their initial attempts to make money in this lucrative field end in failure. With experience and a little bit of help almost anyone can make money in the forex market. These days there is lot of help available in the form of software technology that would answer the question to how to make money in forex. Good examples for such a software tool can be the various charting software that you can find these days. They can help you to read forex charts, which can in turn help you in making the right decision during forex trading. This apart , there are many online sources from where you can get help on forex trading, just in case you are wondering about how to make money in forex.
Forex Broker Advice

Do you want to make more money? Investing money is what you should be looking to do. Investing money in Forex broker advice is going to help you build your nest egg, build your wealth and it only takes a few minutes of your times. Using Forex broker advice, you are going to be able to find an investment that will make your money grow faster than a savings account.

A Forex account is an investment in the foreign exchange market. Forex broker advice is going to be all the advice you need about how to get started, where you can invest your money, when you should start investing in Forex systems.

Following your Forex broker advice you will be able to earn interest on the money you invest. You will find it easily to build a retirement plan, and you will be investing in companies that you can research so you always know where your money is going to be used. Forex broker advice is going to be all about how much money you should invest, why you should consider Forex investing instead of stocks, and Forex broker advice is going to be based on solid business decisions that will help you learn the foreign investing world.

Your Forex broker advice is going to be the best advice you will get about the foreign markets. There are so many changes in the market every day and a broker is going to be more apt to read up and be able to tell you where you should invest, and when to pull your money to put it somewhere else. Some people do not like to listen to Forex broker advice, and will like to learn the ropes on their own. That is ok too, but you should know that it would be difficult to learn all the things that a broker can do for you in the Forex market.

To get involved with the Forex market you first want to find a broker. Not all stockbrokers are going to be brokers involved in the Forex markets. Forex broker advice will be found with those companies that deal in foreign markets, such as larger banks, larger investment companies, not many small investment companies actually deal with Forex systems, or have Forex broker advice to offer investors. Start now by reading more about where you can find a Forex systems broker, and then determine which company you want to deal with. From there, you can get involved in making a new nest egg for your family, your retirement or even both!
8 Basic Tips on Choosing Best Forex Broker

There are some basic notices that you should consider when you want choosing online forex broker.

#1- Spread Amount

The spread, which is calculated in pips, is the difference between how much you can buy or sell a currency at a specific point in time.

Forex currencies are not traded through a central exchange market, so the spread can be different depending on the forex broker you use. Some online forex brokers have variable spread; some of them have two spread amounts that depend to day and night.

Some of them their spread depends to the position of market. When market is quiet the spread is small and when market is busy the spread is high. I prefer forex brokers that have fixed spread, because over the long term fixed can be safer.

#2- Execution

- How fast is the broker’s order execution?

- Do they offer automatic execution?

- How much can you trade before having to request a quote?

- Do they trade against their clients?

The best way to find out is to open a demo account and give them a test drive.

#3- Leverage Options

Leverage is expressed as a ratio between the total capital that is available to be traded and your actual capital. For example, when you have a ratio of 100:1, your forex broker will lend you $100 for every $1 of actual capital you have. Leverage is a necessity in forex trading because the price deviations in the currencies are set at fractions of a cent.

Before choosing an online forex broker notice that what is their leverage. Many brokerages offer a flexible margin that allows you to choose the leverage that’s right for you.

#4- Account Types

Notice the forex broker you choose has mini account or not. Mini account is designed for those new to online currency trading and those with limited investment capital. There is a smaller deposit required to start trade of just $300 or less.

#5- Trading Platform

Good trading software will show live prices that you can actually trade at, not just indicative quotes. It will offer Limit and Stop orders, and ideally will let you attach these to your entry order. One-Cancels-Other orders are another useful feature - they mean you can set up your trade and then leave the software to get on with it.

#6- Dealing tools and value-added services

Find out online forex broker that offers the best resources and information to help you make the smartest trading decisions. A good company should offer real-time charts, technical analysis tools, real-time news and data, and software or website support. Be weary of any company that refuses to share information or trial versions before opening up an account. You will want to try out their system before you choose to invest money in it.

#7- Support

Forex is a 24 hour market, so your online forex broker should offer 24 hour support. You should also check if you can close positions over the phone - essential in case your PC or internet connection crash at a critical moment. You could contact to their Internet help desks to see how quickly they respond to enquiries.

#8- Get Referrals

Ask around and read forex forums to find out which forex brokers other people use and why they selected a specific broker.
Foreign Currency Trading Online

I’m going to talk to you about foreign currency trading online and how it can really improve your life by helping you develop a second income. I’ve been involved in this market for a few years now and it wasn’t always profitable, but in that time I learned a lot about what works and what doesn’t work. The key to making money in this market is applying the two fundamentals; earn money and protect money. A lot of people don’t properly build their foundation. They work on trying to earn money, but don’t take the time to learn how to protect it. If you can’t protect, than you’ll lose it all. I’ll show you what you need to do to do great doing foreign currency trading online. The first point I want to make in foreign currency trading online is the way to protect yourself. You’re going to have bad trades. It’s just part of life. We all have them, but protecting yourself from the damage and loss they create is the important part. It’s actually quite easy; cut your losses. That’s all you have to do. When you cut your losses, you limit the amount of damage the trade can do. A lot of people have a hard time letting go of their trades, but you have to learn to do it. If you want to be successful with foreign currency trading online, the key is building a routine. That’s really the formula for success with anything, but it’s doubly important when you’re working from home. You’re going to have to identify the activities that you do that make you the most money. That’s all you have to do. Just find what works and do it over and over again.
Forex Training for the Currency Forex Market

Forex training is the hardest part of the currency forex market. You have to learn how to properly trade to be profitable. There is just no way around that. I know this all sounds so obvious, but many people don’t take the necessary time to do this sort of work. They hear about the three trillion dollars a day being traded and they go looking for their share of the pie. This is why there is a huge problem in the market with people being unprofitable. If you actually sit down and do the necessary work to be profitable, you will be. You have to understand that the currency forex market isn’t profitable all the time. There is a difference in the time of day when you can trade. This is a 24hr market for you to trade in and you might not want to hear that it’s not that profitable at times, but it’s the truth. Typically, you have the high volume times when a lot of trading is happening and low volume times where there is very little trading going on. Surprisingly it’s the low volume times that are volatile. There just isn’t enough volume to sustain supply and demand, making prices very erratic. The next part of my forex training is to get automated trading software. This is an important part of remaining profitable in the currency forex market. Money is constantly moving up and down. You can’t watch all the trends all the time. Software is very good at doing this tedious work. You can find much more profitable trades to make if you let software do the grunt work.

Source: financestocks.info