There are several different types of brokers. Each one offers different trading conditions. ECN, STP and MTF broker offer direct access to the interbank market, while market makers act as the counterparty to clients' trades.
Is an ECN/STP broker more reliable than a Market Maker broker? This article will demonstrate that it is more important to choose a broker that is located and regulated in a country with strict regulations and that guarantee your funds.
Forex trading is different from investing in shares or futures, because a broker can choose to trade against his clients. This system used by "Dealing Desk" Market Maker brokers is known as "B booking".
Compare forex brokers' trading terms and conditions. Spreads and commissions, types of trading orders, regulation, etc.
Forex traders include banks, international companies, investment funds, hedge funds and individual investors. Most forex players speculate, while the others manage the exchange risk related to exports/imports of goods and services.
The forex market is an OTC market. Broker regulation authorities are therefore necessary to protect traders and impose rules of good conduct for brokers. Traders must check whether or not their broker is licensed in their country.
The currency exchange market has changed considerably throughout history. Once reserved for banks, this market, commonly referred to as the forex (foreign exchange) market, has been available to individual investors since the 1990s.
Forex brokers lend money to traders so that they can increase their investisements on the foreign exchange market. Leverage therefore essentially consists in borrowing money from a broker to increase one's return on investment. However, this also means that a trader increases his risk of losing more money.
Forex transaction volumes are mainly concentrated in five currencies: the dollar (USD), the euro (EUR), the yen (JPY), the British pound (GBP) and the Swiss franc (CHF).
Transactions that are done with cash (spot forex) with foreign exchange brokers are subject to positive or negative interest charges (currency swaps) if the positions are held at the time of the rollover at 22:00 (GMT time).
The forex market offers many advantages over other financial markets. It is open 24h/day and allows traders to speculate with leverage and very low transaction costs.
It is possible to trade the forex 24h/day, from Sunday evening to Friday evening. However, the volatility of the currency exchange market depends on the time of day. Trading volumes increase when the main financial marketplaces are open.
Every trader needs to understand the language used in finance. Here is a glossary of important technical terms which relate to derivatives trading (forex and contracts for difference) and the world of finance in general.
CFDs are derivative products that are traded on the OTC (over the counter) market. CFD trading allows traders to invest in a broad range of financial products (currencies, stocks/shares, indices, precious metals and commodities) through a trading platform.
This brief guide is intended for aspiring traders, its purpose is to explain the basic concepts of forex trading: the demo account, spreads, leverage, lot size, types of orders...
If you're new to forex trading, you might want to start playing with a forex trading platform and testing out your strategies with a free demo account. Learn the key basics here (how to place an order, etc...).