CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 77% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
The first and most important step a trader needs to take is to find a forex broker they can trust. In this industry, brokers are an integral part of the trading equation and they are a trader's prime business partner, so a trader's aim should be to find the best forex broker available. Choosing a suitable and reliable broker is vital, as is choosing one that will meet your individual needs as a trader. In order to make an informed decision, there are some key factors every trader should take into consideration.
This one may sound a little obvious, but you'd be surprised at how many unregulated forex brokers there are. The best forex brokers are regulated and supervised by a local or international authority. Without regulations, forex brokers can do as they please and this may result in some very unpleasant issues for you as a trader. Be safe and go with a broker that you can trust. Adhering to rules and standards is the only definite sign that a broker takes trading very seriously.
So what exactly is spread? If you take the bid price and the ask price of a currency pair or other asset and you calculate the difference between the two, that is the spread. If the spreads offered by a forex broker are high, this signals a red flag. Many brokers make a profit at your expense from high spreads, so opt for a forex broker with low spreads.
The simplest way to explain leverage; it gives the trader the ability to trade larger amounts of currency with a smaller deposit amount, therefore increasing the trader's buying power. Leverage is presented in ratio form; 1:1000 for example means that your buying power is increased by 1000 times. Deposit €1000 and the broker will match it to make it €1,000,000. High leverage essentially gives opportunities to traders that they would not have had otherwise. Small traders with little capital can take advantage of high leverage to maximize their profits. Just as profits can be maximized however, so can losses, so leverage must be handled with care and must not be used continuously, especially by those who do not need it.
When trading in a fast paced market like the forex market, it is crucial that you choose a broker that can execute your trades in a fast and efficient manner. Delays in execution can only cause problems.
A variety of account types to choose from is always a plus. Each trader differs from the next and if a broker offers a wide range of account types it means they can cater to different traders' financial abilities, needs and aspirations. The best forex brokers will recognize that the power of choice goes a long way; traders respond well to freedom, not limitations.
Trading with a demo account before trading with a live account is crucial. If a forex broker doesn't offer demo accounts, run in the other direction. By trading with a demo account you can trade with real conditions but virtual money, so it is absolutely risk free. This is the best way to get to know the ins and outs of trading and to put your trading strategy to the test. You can discover your strengths and weaknesses as a trader and embark on live trading only when you are confident and ready.
As mentioned before, traders don't respond well to limitations. The more trading instruments a forex broker offers, the more opportunities are unveiled. Choose a broker that doesn't just offer the Major currency pairs but also the Minors, the Exotics, precious metals and other commodities. Gold for example is a very popular trading instrument during times of economic and political instability.
The best forex broker will offer the best trading platforms. A reliable platform will offer you quick access to technical and fundamental analysis, an excellent security system, automated trading, visual features like graphs and charts and should always be user friendly. The market standard is the sophisticated MetaTrader 4.
Automated trading, or algorithmic trading, puts the trader at a great advantage. A trader can implement his strategy or adopt another trader's strategy and from then on, some trading platforms contain software that automatically executes trades for you based on the strategy you have developed or adopted. A good example is Expert Advisors on the MetaTrader 4 trading platform. The advantage of automated trading is that you do not have to be glued to your monitor all day, waiting for an opportunity to arise. Opportunities will be caught for you by the automated trading system. Keep in mind however that such systems function according to the strategy you have developed or adopted, so the risk that they can create losses as well as profits is always present.
For your benefit and convenience, it is important to choose a forex broker that offers quick and easy deposits and withdrawals. Quick deposits help you support your trading position and take advantage of opportunities that may arise suddenly in the market. In the case that you need to withdraw your funds for whatever reason, the withdrawal process should also be fast and simple so your funds can be returned to you in no more than a few working days.
Disclaimer: This written/visual material is comprised of personal opinions and ideas. The content should not be construed as containing any type of investment advice and/or a solicitation for any transactions. It does not imply an obligation to purchase investment services, nor does it guarantee or predict future performance. FXTM, its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness of any information or data made available and assume no liability for any loss arising from any investment based on the same.
Risk Warning: There is a high level of risk involved with trading leveraged products such as forex and CFDs. You should not risk more than you can afford to lose, it is possible that you may lose more than your initial investment. You should not trade unless you fully understand the true extent of your exposure to the risk of loss. When trading, you must always take into consideration your level of experience. If the risks involved seem unclear to you, please seek independent financial advice.