Choosing a FOREX Broker

Just as in any other trading market, there are numerous brokers in the FOREX market to choose from. Here are a few things to keep in mind as you shop for one:Choose a broker that has lower spreads. The spread is the difference between the price which currency can be bought and the price at which it can be sold at any given point in time. FOREX brokers don't charge commissions, so this difference is how they make their money; therefore, the lower the better for you.Make sure that the broker is backed by a reliable financial institution. FOREX brokers are usually affiliated with large banks or lending institutions because of the vast amounts of leverage, or capital, that they need to provide. The broker should also be registered with the Futures Commission Merchants (FCM) and regulated by the Commodity Futures Trading Commission (CFTC). This information should be found on the broker’s website or that of the parent institution.The broker should provide market tools and research. FOREX brokers usually offer many different trading platforms for their clients. These platforms often include real-time charts, technical analysis tools, real-time news and other data. Brokers also usually provide technical commentaries, economic calendars and other research information.The broker should offer a wide range of leverage options. Leverage is the amount of money that a broker will lend you for trading. It’s expressed as a ratio of the total capital available to the actual capital invested; for example, a ratio of 100:1 means your broker is lending you $100 for every $1 of actual capital that you put up. Leverage is necessary in FOREX because the price deviations, which are the sources of profit, are so small, merely fractions of a cent. Lower leverage means lower risk of a margin call, but also a lower degree of profit. A variety of leverage options allows you to vary the amount of risk that you’re willing to take.Make sure the broker you choose offers the tools and services that are right for the amount of capital that you have. Many brokers offer two or more types of accounts. The smallest is known as a mini account; requires you to trade with a minimum of, perhaps, $250, and offers a high degree of leverage (which you’ll need in order to make money with such a small amount of initial capital). The standard account lets you trade at a variety of different leverages, but the minimum initial capital required is around $2,000. Premium accounts, which often require significant amounts of capital, allow you to use different amounts of leverage and often offer additional tools and services.Beware of Sniping and Hunting. This refers to brokers prematurely buying or selling near preset points in order to underhandedly increase profits. Of course, no broker is going to admit doing this. And since there are no blacklists or organizations that report such activity, the only way to determine which brokers do and which ones don't is to talk to other traders.Make sure the broker follows strict margin rules. When you are trading with borrowed money, your broker has a say in how much risk you take. This is because you are required to sign a margin agreement when you open an account. This agreement states that since you are trading with borrowed money, the brokerage has the right to interfere with your trades, at its discretion, in order to protect its interests. Depending on your position in the market, this could cost you a great deal of money. Again, talk to other traders or visit online discussion forums to find out who the honest brokers are.

FOREX Fundamentals

The use of Technical Analysis in the FOREX market is much the same as in other trading markets: price is believed to already reflect all news which would have had an effect on the currency’s value. But since countries don’t normally have balance sheets, how can Fundamental Analysis be conducted on a nation’s currency? Since this type of analysis involves looking at the intrinsic value of an investment, its application in the FOREX market will entail the study of the economic conditions that influence the valuation of the country’s money. Here are some of the major fundamental factors that play a role in the price movement of a currency.Economic indicators are reports that are released by the government or a private organization which detail the country's economic performance. These reports are the means by which a nation’s economic health is measured. (It must be kept in mind, however, that a great many factors will influence a country’s economic performance.) These reports are released at scheduled times, thereby providing a readable marker of whether a nation's economy has improved or declined. Some of the reports, such as unemployment numbers, are well-publicized. Others, like housing statistics, receive very little media coverage. However, each indicator serves a particular purpose, and can be very useful. Four major indicators are listed below:The Gross Domestic Product (GDP) is considered to be the broadest measure of a country's economy, and it represents the total market value of all goods and services produced by that country in a given year. Since the GDP figure itself is a lagging indicator, most investors focus on the two reports that are issued in the months before the final GDP is released: the advance report and the preliminary report. Significant revisions from one report to the next can often cause considerable market volatility.The Consumer Price Index (CPI) is a measure of the change in the prices of consumer goods across 200 different categories. This report, when compared to a nation's exports, can be used to determine whether a country is making or losing money on its products and services. The exports must be carefully monitored as well, however, because their prices often change relative to a currency's strength or weakness.A country’s Retail Sales report measures the total receipts of all retail stores. This report is particularly useful because it’s an indicator of broad consumer spending patterns, and is adjusted for seasonal variations. It can be used to predict the performance of more important lagging indicators. It’s also valuable in assessing the immediate direction of a country’s economy. Revisions to advance reports of retail sales can cause significant volatility.The Industrial Production report shows the change in the production of factories, mines and utilities within a nation. It also reports their 'capacity utilizations', which are the degrees to which the capacities of the factories are being utilized. Traders using this indicator are usually concerned with a nation’s utility production.There are many other important economic indicators, and still more private reports that can be extremely useful in evaluating FOREX fundamentals. It's important to not only look at the numbers, but to also take the time to know and understand what they mean and how they affect a nation's economy. When properly used, these indicators can be a valuable resource for the FOREX investor.