Forex Brokers and Spreads

Forex trades are constantly growing in popularity. New Forex broker companies are opening up at a very high rate. Many people who are accustomed to working in 9-5 jobs are leaving their jobs and starting to trade with hard currency. There are many explanations for the growth of the forex currency market, some of the most obvious is its size, its simplicity, and its potential benefits.

When one thinks about foreign exchange transactions compared to other world markets, such as the stock market, some very basic differences should come to mind. These include greater liquidity, more volatility, greater multiplier effect, as well as lower trading fees and lower costs. We have already talked about the liquidity, volatility and leverage offered in the forex, so now we are going to learn a little more about trading costs and commissions, compared to other global markets.

Take the stock market, for example. When one trades with stocks, which by the way is a very common phenomenon for currency traders to test stocks before currencies (a lot of people fail to trade stocks and then go back to the forex market, and with reason), the way the transactions are carried out is for the investor to make purchases and sales by paying commissions on both sides of the transaction. What does that mean? When you trade in shares, you usually do it in collaboration with a broker, who charges you a fixed amount per transaction, a dollar amount per share, or a scale commission based on the size of your transaction. This commission applies when you buy a stock, as well as when you sell it.

Now let's talk about Forex trading. The vast majority of online Forex brokers advertise in very large letters on their website that do not charge any commission for trades. With the exception of a few brokers, the currency market allows traders to open and close positions with no commission whatsoever.

Therefore, it does not cost anything to trade in Forex. This, of course, raises the obvious question: How do Forex brokers make money?

This is where it gets complicated. It is true that many brokers do not charge direct commissions for trading in the Forex market, but brokers dedicated to currency trading do not perform trades that tell traders the goodness of their hearts. You can be sure that they are profiting from your services and these are usually quite high. They charge what are known as spreads.

Before understanding what the spreads are and how they are calculated, it is important to understand a fundamental principle on how the Forex trading system works. Everything is based on supply and demand, just like any other market. If there is a greater demand for dollars, the value of the dollar rises against other currencies. This is precisely how spreads are defined and calculated.

The spread is the difference between the price at which a broker is going to buy the currency for you and the price at which it is sold. So, for example, if you open a position where the base currency is the dollar, and since there is no shortage of dollar demand, the spread of this operation will almost always be smaller than a spread for a less common currency . Why? This is again, by supply and demand. The agent will have no problem at all in selling the dollars you just bought, so you do not need to charge the operator, bone you, a higher spread. Now that, if the base currency of the position is the Vietnamese Dong, it is understood that it is very likely that the spread will be higher.

Another feature that Forex brokers take into account when calculating spreads is the type of account in which you are trading. Mini accounts are typically associated with higher spreads. This is, of course, because the agent has to compensate for the relatively low amount of capital being traded at a higher spread, so that he can make a profit.

Now that we have established how attractive Forex trading is, it is not totally free. Next we will establish the difference between the forex spreads and the commissions of the stock market. The main difference is that in the Forex, it is usually only charged the spread of a single side of the transaction, the buying side or the selling side. When you buy or sell the currency, it is when the brokers in general, get their benefits by charging the spread.

It is extremely important that Forex traders understand the importance of the spread when it comes to choosing a forex broker. The difference that a pip can make on the spread of a broker can be the difference between a successful Forex trader and one that fails completely in the currency trading market.

To summarize, let's look at a concrete example of a spread to understand exactly how it works. Let's say we have a USD / CAD purchase price of 120.00 (which is the price at which the agent is willing to buy the USD) and a sale price of 120.05 (the price at which the agent is willing to sell the USD ). In this case, the spread is equal to 0.05, or 0.0005 dollars, and the money goes directly into the pockets of the broker.

There is a lot more to say about spreads in the Forex market, such as if a broker offers fixed or variable spreads, but at least now you have a better understanding about what they are.

Tips for Choosing a Good Forex Broker

In the 70's the Forex market was created, and in the last 10 years it has experienced strong growth thanks to the internet and new technologies. There are studies that indicate that there are daily transactions in the Forex market worth 4 trillion dollars (the New York Stock Exchange moves 50 times less daily).

In addition, individual investors and traders have grown very fast, thus becoming one more participant, although very small in comparison with the Central Banks, commercial and investment. With this great growth in the Forex market have emerged new investment brokers with the aim of attracting retail investors. There is so much broker offer that it is difficult to choose a good broker.

A broker is the financial intermediary in our operations, that is, it is the intermediary between buyers and sellers. 10 tips that you would have to consider to choose a good broker in the Forex market are:

1. Avoid welcome gifts

Avoid all those brokers who offer welcome gifts type 30% welcome bonus. In most cases if you stop to read the fine print of the conditions, you realize that in order to withdraw the bonds or the money itself, you are more likely to end up losing all the money deposited. One fact to keep in mind is that if you want to withdraw your money and do not meet the conditions (almost always), you will be deducted from your account the bonus received or the amount of the gift made.

      2. A solid and respectable broker

Choose a broker with a lot of equity, because the greater the capital of the firm, the greater the protection of its funds. To determine the vitality of a broker, you should look at the number of employees you own. If you are a solid and respectable organization, you will have hundreds of employees, who will be able to assist you 24 hours a day. It is also likely to have hundreds of thousands of accounts. If the firm has few employees it is likely that they have a small capital or they are unable to provide the personal assistance you need.

       3. Regulated Broker

It should be noted that the broker is regulated by a competent entity such as NFA (United States), FSA (United Kingdom), FINMA (Switzerland), among others. We must avoid all those brokers who are in tax havens. Brokers in Europe, Canada, Hong Kong and Australia have adequate regulations, and capital requirements are high. If your company is in a third world country, the current regulations may not be adequate.

        4. Greater Leverage

Leverage can help you reap considerable profits but can also cause huge losses. It is advisable for a broker to provide the leverage so that it can operate effectively in the forex market. Of course, greater leverage means better opportunities for you. Some brokers offer a leverage of 100: 1, which means that for every dollar in your account, you can borrow and use up to € 100. Other brokers offer up to 250: 1. When choosing a broker, you have to take into account the leverage offered, as this could be your ally to win big.

        5. Account Types

It is advisable for the broker to offer different types of forex accounts. For example:

•   "Mini" accounts require a minimum margin or equity that could be $ 250 onwards. With this type of account, you can trade in forex but the level of leverage is lower.
• "Standard" accounts, which require a minimum of $ 2000. This type of Forex account allows you to open larger positions.
•   The "Premium" account allows the opening of even greater positions.

       6.  Real-time information and good graphical tools

Facilitate daily decision making, helping to choose a more optimal investment.

       7.  Have a free demo account

It is advisable that the Broker has a free demo that operates in real time because it allows you to practice and learn from real or fictitious money the features and services of the broker you want to contract before opening a real account.

      8.  Avoid so-called brokers Snipers or Hunters

These brokers often buy or sell based on preset points, usually perform these maneuvers to increase their profits. Avoid this type of corridors. To know who these brokers are, you must communicate and interact with other operators online or through forums.

      9.  Automatic execution


One of the most important variables to keep in mind when choosing a broker is the speed of executions. The best thing is that the execution is automatic, so when we want to enter or leave the market at a certain price, the Broker usually respects it.

      10. Do not pay spot fees


Forex traders do not pay commissions for placing orders, unlike those that operate in futures markets. Actually, a Forex broker is a simple broker, not a broker or broker itself. Therefore, they obtain benefits through the Spread, this is the difference between the value of the "bid" and the "ask".

      11.  Remember the differences between hiring a market maker and an ECN (Electronic Communication Network)

You have to take into account the differences between an ECN and a market maker to know which type of broker can best meet your investment needs.

It should be remembered that: price volatility in an ECN is often higher than in a market maker's network, ECNs often do not allow leverage, unlike market makers. In addition ECNs usually give the prices that their liquidity providers mark, with the same exact margins, and then charge a commission for each round round transaction. However, market makers can open an account with fewer resources and their platforms are easier to use.

Do not forget that the market maker or market maker covers the position with other operations or does not cover it, so it assumes the risk contrary to yours. That is, if you win the market maker loses, which creates a conflict of interest.

        12.  Good customer service

The customer service is very important because they will help you to resolve any possible incidents that you may have. It is advisable to look for a broker to solve them as quickly as possible, not to hinder the withdrawal of funds, which does not have many complaints from other investors. To know the opinion that other investors have about the brokers in the market you can consult and participate in forums.

How to Choose a Forex Stock Broker

To choose a good broker in forex we must carefully analyze the great offer that exists in the network. While some offer professional and serious services, many others take advantage of the boom in this market between small and medium investors, offering attractive promotions but the services offered are not appropriate. To choose a trustworthy broker, we must first ensure that it is perfectly regulated, so our savings will be safe and we can invest in peace of mind.

A broker must be regulated by the agency of the Stock Market of his country. Each country has a serious regulatory agent. Not all brokers have these quality accreditations, are difficult to obtain and are proof that their work is reliable and will be continuously monitored by an independent instance.

This means that if we have any problems, we can file a formal complaint with the regulating agency and it will open an investigation and even withdraw the broker license.

In addition to being regulated, so you can perform operations with good profitability and profits, you must know the commissions of the broker. The most common ones are: the commission of custody and deposit of securities (this varies between a broker and another), brokerage commission (which may be negotiable with the entity), brokerage commission (which is issued when an operation is performed through a non-stock company), the liquidation fee and the stock market, the latter being independent and established based on the effective value of the transaction.

Five ways to detect a scammer Forex broker

If you are looking for a new Forex broker, or doubt if your broker is giving you an acceptable deal, then I will leave you a list of some things for you to consider when doing your assessment.

1. Not all Forex brokers are thieves! 

It would be very unfair to take the attitude that Forex brokers are all criminals. What you need to keep in mind is that most Forex brokers do not place their customers ' trades on the real market, and they charge spreads instead of commissions. This means that most Forex brokers are in a direct conflict of interest with their customers: the more they lose their customers, the more money the brokers earn. In fact, their business model is based on the failure of their customers ' trades. 

is a sad fact that most forex traders lose, but this is mainly due to poor trading methods, and does not mean that forex brokers have to act dishonestly to make profits. 

However, more profits are always good news, so there are some tricks that some brokers have in their sleeves to squeeze more money from flexible customers, and here are a few things you should consider.

2. Spreads or High Commissions 

The spreads have gone down very much in the last years. All the more money has you to finance its account, probably it will find better spreads available for you. This is due to the fact that the brokers that offer better spreads, usually need higher minimal deposits. In any case, you really must compare its options. The days of having to pay a spread of 3 pips for EUR/USD have ended.

Recently, more brokers have been introducing models based on commissions, where the clients pay a fixed cash quantity for trade. When it meets this, calculates carefully how much it usually risks in a trade for pip, and then calculate this "spread" who will be paying. Sometimes these offers of spread more commission are designed to do that the offer turns out to be better than really it is, and it is possible only to discover this once I realized personalized calculations.

3. Financing During the Night
Unless you are a pure day trader and close all its positions before 10 a.m. pm or the hour of midnight of London every day, you will pay or it will receive a small quantity (generally less than 1 pip) in every open trade that it has in this moment. This is based on the interest rates differential between the coins that compose this pair in particular, but it is structured by practically every broker as clear loss for the client. Some brokers are much worse than different, and many people do not announce these tariffs - you see it in its declaration the following day once the payment or the deduction has been done. If it gets in touch with most of the brokers, in general they will be prepared to quote its financing valuations overnight. Obtain some quotations and compare them in the same pairs of currencies, and perhaps be surprised for the results. If he likes maintaining trades in the long term, do a few calculations on how much it is probable that he pays in this night financing. You can think that you diminish significantly or you even erase its profit.

4. Execution of Stops / Sudden Increases
It is not understood that the brokers control their own prices. There is no central market, and most of the brokers are not doing trades real: and they can quote any price that they want! Of course, they have to maintain the quite honest prices, since otherwise it might use the prices of other brokers to predict correctly the prices movements, and as result they would lose money. So really he does not have to worry that its broker is going to invent the price.

What might worry him is that a broker can see where its clients are grouping its stop loss orders, and if the general price of the market comes very close to unleashing these stops, the broker might feel very tempted to push its price on this level and to take the profit as soon as possible. This can become even more easy during announcements of news or sudden shocks that have the effect of increasing the general price of the market up or down. A broker without conscience can always send the price a little higher or lower in these moments.

To be just persons, sometimes errors are committed, and the brokers often compensate the trades interrupted after excessive peaks when a sufficient quantity of its clients they complain. Nevertheless, it is something so that you are careful.

5. Interruptions 
There are times when the market is fleeing in a clear direction. If you want to make a trade and cannot get a connection with your broker, or the trade is repeatedly rejected for some unknown technical reason, then be careful. This is a type of a broker who is using unfair methods to prevent his customers from placing winning trades. If it happens a lot, it's a suspicious signal. 

This is not a comprehensive list of things to consider when choosing a forex broker, but are the most common broker problems that can make you win in Forex is much more difficult than it should be if you do not consider them.

How Forex Works?

In Forex (FX), as in other markets, trading is speculation. Traders buy (go long) or sell currencies (go short) in anticipation of market behavior either bullish or bearish.

Currency is always quoted in pairs (eg EUR / USD, GBP / EUR, etc.) Each time a trader trades with a pair (say EUR / USD), it means that the base currency is bought (on the left ) and selling the quoted currency (on the right side) simultaneously.

For example, the EUR / USD has a price of 1.2915, which means that 1 € = 1.2915 $. If the investor believes that the price of the base currency (in this case EUR) will increase (to be revalued or appreciated) against the USD, then it will buy EUR / USD. If, on the other hand, you think that the EUR will lose value against the dollar (depreciate), it will sell the EUR / USD pair.

Is a Good Idea to Change Forex Broker?

One important reason you may have to switch Forex broker is certainly fear for the security of your deposits. If you ever ask your broker to withdraw some funds from your account, and it becomes excessively slow or unresponsive, then this is an excellent reason to switch brokers immediately. Of course, if you hear some reliable information about your broker's financial situation or ethics, it will also be good to consider a change. It is advisable to check from time to time the professionalism of your broker, even if you have obtained some good results, requesting the withdrawal of some of your recent earnings. If there is an unwarranted delay, it is advisable to close the account immediately and, if necessary, threaten to contact the corresponding regulator.

Moving from critical reasons to more common reasons, one of the factors that urged more than one customer to change brokers is the average level of spreads that are charged. For example, there are still brokers charging a spread of 3 pips in the EUR / USD pair. While this was the norm a few years ago, today it is considered extremely expensive. Switching to a broker that offers the EUR / USD at 1.5 pips or less makes sense, since the spread becomes the "cost of doing business", and over time can generate a loss in operator income, especially if you trade frequently using short time frames.

Another good reason to switch brokers can be an unstable platform. If you find that the trading platform is disconnected very frequently or that it takes a lot of time to execute an operation, then this is a convincing proof of incompetence or dishonesty. Dishonesty is more likely if these disconnections or freezes happen every time you are trying to enter a trade where you would have made profits quickly. Of course, it is important not to be paranoid and not to blame your broker for all your losses. However, as the Forex market does not have a centralized place, brokers have a commercial incentive to "shadow" their spread just above levels where many of their customers have stop-losses set in open trades. determining whether your broker is acting shady is to see if these price movements do not match the price feedback of other brokers.

Watch two or three. If your broker tends to produce sudden and unexplained spikes in price, which are not followed by other brokers, it is time to think about moving away from it.

A good way to get a better understanding of whether a particular agent is the best for you is to think about what the brokers are actually doing, and see things from their point of view. In order to do this, it is helpful to start with some facts about Forex trading:

1. Most currency brokers are not really trading any currency in the market. They are simply providing a price indicator, in the movements of which their customers can bet in exchange for two effective quotas: the spread or commission, and a small charge during the night that incurs each night any position that is left open. These brokers are in antagonistic relationships with their customers: they make money when their customers lose and lose money when their customers win.

2. The remaining currency brokers tend to monitor the trades of customers who have profitable trading data, and cover the aggregate positions of these traders with a bank. These brokers have a less contradictory relationship with their customers, but they may still face problems in the proper way of covering themselves in rapidly evolving markets.

3. The real Forex market is dominated by four large banks which together account for about 85% of the market volume. These banks provide liquidity to the smaller banks, which in turn do the same with smaller banks, who then provide liquidity to the brokers, and so on in the chain in size and importance. This tends to mean that the smaller the broker, the worse the price and the spread they are willing to give, as they themselves will not be able to get premium prices. The dilemma here is that these smaller brokers tend to offer lower minimum deposits. The more money you have to deposit, the better the service that will be available to you. Of course, this does not mean that you have to go higher up the chain than the one that is appropriate for your account size. In general terms, it is a good idea to adapt the Forex broker to the size of your account.

4. Much of the Forex market has a bad reputation and is poorly regulated. When you are

What is and how does the stock market?

Are commissions that are charged for each transaction of purchase or sale on the shares traded on the continuous market.These rates are inescapable and exactly the same for all brokers. The applicable rates are of two types:

1. The royalty or canon fees proper

2. Settlement Fees

To keep in mind

The broker commissions we have hired must always be added to the broker commissions listed here. Said broker, as an intermediary, is responsible for launching orders to the market on our behalf, so he receives a commission each time he has to intercede for us and negotiate a purchase or a sale. Each entity has its own tariff sheet that differs in any case from its competitors. Most brokers usually do not include broker commissions among their prices, so we will have to add them apart.

The system of tranches of the Spanish stock exchange rates is thinking in a way that, to a greater investment, prices much more economic. Thus, if you are touching the threshold of a higher tranche in your operations, you may want to invest a little more and exceed the next threshold (since commissions will be lower).

When you are going to hire a broker, remember to also take a look at the special commissions: for collection of dividends, by mail, etc.