Choosing a good forex broker is one of the most important decisions you need to make at the beginning (or at any point) of your forex trading career. Do not take this decision lightly, but at the same time don’t stress over it – the process does not need to be complicated – just like in your trading decisions, once you do your homework, things tend to fall into place. Chance favors the prepared trader and everything you need to make an informed decision is listed right here.

How to Choose a Forex Broker continued

The concept of leverage is really quite simple, but its true meaning often becomes lost in the mountain of marketing-speak most forex brokers dish out at us traders. The misconceptions always arise as a result of the interchangeable usage of the words “margin” and “leverage”. These two concepts are related, but are in fact not interchangeable except in the most extreme (and suicidal) case where a trader decides to use the maximum leverage available to him under the broker’s house rules.

Leverage continued

There are a number of forex dealers, dare I say even the majority, who allow clients to practice what is commonly referred to as “hedging” in the forex. What this means is that they allow clients to open both long and short positions in the same currency pair, at the same time. Other dealers, on the other hand, automatically close your positions when you enter orders that are exactly opposite to your open positions. There is an ongoing debate among retail traders about whether the practice of “hedging” is useful or not.

Forex Hedging continued

Like any other business in the history of business, your broker’s raison d’etre, is to make as big a profit as possible. There are about as many ways to go about this as there are brokers. For those who are in it for the long haul, however, it is generally best to adopt a set of practices which are deemed fair by their clients: certain boundaries are set, and operating beyond them can cost a brokerage its reputation, and along with it its clients.

How Forex Brokers Work continued

This article assumes some knowledge of the way the forex market and forex brokers work. If you are not familiar with this, we recommend that you first read our Structure of the Forex Market and Structure of Forex Brokers articles. Contrary to popular belief, ECN's are not superior to Market Makers in every way. There are advantages and disadvantages on both sides.

ECN vs Market Maker continued

For those who are thinking about entering the forex market for the first time, there is some very basic information that is often overlooked. For example, what exactly is happening when you enter a trade? Well it’s simple really, but important to understand. Say, for example, that you have a shiny new $10,000 account. You find a great entry on EUR/USD that you want to take. You enter a 1 mini lot long position with a 100 pip stop loss and a 200 pip take profit target at a price of 1.2500. What just happened?

Mechanics of a Trade continued

For many new forex traders, the promise of quick riches is difficult to resist. That is the main reason why every day so many people from all walks of life begin trading the forex market. While some element of this “keep your eyes on the prize” mentality is necessary to get traders through the tough times, on any given trading day one should really focus on other things first.

Forex Position Sizing continued

The forex is unique among financial markets in a number of ways. One of these is that it was not traditionally used as an investment vehicle. It had, and still maintains to some extent, a somewhat more utilitarian purpose. In today’s globalized economy, most businesses have some international exposure, creating the need to exchange one currency for another in order to complete transactions.

Structure of the Forex market continued

In order to gain an understanding of what actually moves the prices, or exchange rates in the interbank market, we must first understand that for any transaction to take place, there must be a buyer and there must be a seller – there must be a counter party for every trade.

Forex Price Dynamics continued

It has been known for many moons, and over many business cycles, that during every economic downturn, or recession, things follow a similar path. One of the first things we see is a bear market in equities. Short-selling in the stock markets is a bit tricky, however, particularly with regulators around the globe deliberately trying to curtail it, so this is not the equivalent of going long in a bull market. So it came to be known that during recessions, cash is king.

Investing in Recession continued