Researching Forex And Getting To Know Your Forex Dealer If you've decided to open a forex trading account, you will likely be dealing with a particular retailer, your forex dealer. Before opening an account, you should know what to expect from a forex dealer and learn all that you can about the one you choose.
While sales pitches emphasize no commissions or high liquidity or great spreads, it is critical to note that when an individual investor deals with a forex dealer, the dealer is the entity which buys and sells currencies. The dealer is not a clearing-house; it is the actual buyer and seller of the currency pairs you choose. You are doing business with the dealer, and the dealer makes money when you lose money. This is a conflict of interest because the dealer is motivated to make money from the spread it offers or with other charges associated with your account. Dealers competing for your business might reduce the profits they make on your trades by offering tighter spreads or other incentives to get your business, but they still earn money when you lose money.
Begin by checking that the broker is registered with the CFTC, the government agency that deals with forex trading. Most retail forex dealers will have registered with the CFTC. Similarly, check to see whether your forex dealer is a member of the National Futures Association. This registration is voluntary, but most legitimate retail dealers are also members of the NFA.
Your forex dealer should be financially stable. While the CFTC and NFA both have funding requirements for firms they oversee, forex account monies are neither insured nor required to be kept separately from other liquid assets the dealer owns and controls. You must be aware that if your forex dealer goes bankrupt, your funds will likely be lost and you will probably not be able to get them back.
Before you open your account with a forex dealer, find out about the performance of their retail forex accounts, also known as non-discretionary accounts. "Non-discretionary" means that the account's owner, not the dealer, manages the account. Information on their performance will give you an idea of the total number of accounts and those that were profitable or not profitable during a particular time period. The performance for various dealers will vary, and you can draw some conclusions by comparing different dealers.
Different dealers use different trading platforms, which is why you'll see some retailers advertising
that they support one trading platform or another. If you have researched trading platforms and you have a preference for one in particular, you should make sure that your retail Forex dealer supports trades using this platform.
Read your account agreement carefully. It is your contract with your forex dealer. These agreements vary on terms, such as those about permissible minimum margin requirements, typical spreads ,and even the currency pairs available through a particular dealer.
If you call your forex dealer for information, always ask them to direct you to where in your contract the advice or explanation you are receiving appears. Most account agreements will clearly state that if a company representative provides you with advice that seems contrary to your agreement, the agreement prevails.
If you keep this article's advice in mind, you'll be a little better prepared to choose a forex dealer wisely. Selecting a reputable broker is one of the first forex choices you make, and also one of the most important. Good luck with it! Click here for more information