Foreign exchange (Forex) dealing is not the same as the stock market. One of its distinctive features is the numerous methods dealers use to tempt traders to trade more frequently. They may claim to charge no commissions, data fees, or exchange expenses. This may seem irresistible to a novice forex dealer. Brokers want to make money from YOU, so keep that in mind. How they use deceptive offers to get your attention is the only issue.
There is no denying the value of trading where no fees are incurred. However, it’s not always the best value or the cheapest option. The truth is, it stinks sometimes.
The best forex broker for you can be found by comparing their charge and commission structures, which I will now demonstrate. And don’t fret; selecting a dealer will not lock you into anything permanent.
Structures of Compensation:
Forex dealers may charge one of three types of commission. It’s true;
There are three commission structures: a flat rate, a portion of the spread, and a fixed rate.
How exactly are they referring to “spread”? The spread is defined as the disparity between;
Comparison of the bid price, the amount the market maker is willing to pay you to purchase currency, and the asking price, the amount he is ready to give you. (the asking price).
Let’s say the following citation appears on your screen:
The range for the EUR/USD is 1.4831 to 1.4834.
The disparity between the bid price of 1.4831 and the asking price of 1.4834 is three pip spread. You’re working with a market maker (broker), sticking to a fixed distance of 3 pips rather than providing a variable feed. No matter what happens in the market, the space with him will never exceed three points.
If your broker has a variable spread, it may be as low as 1.5 pips or as high as five pips, based on the currency pair you’re trading and the state of the market.
Which option should one take? The certainty of the fixed spread’s prices suggests it might be the better option. However, there are a few additional factors to think about.
In addition, some brokers may tack on a tiny fee, perhaps 2/10 of a pip. Your and other customers’ orders are relayed to a large market maker with whom he has a solid working connection. This way, you can get the same low spreads that more prominent traders enjoy.
Put all of this on hold for the time being. Make some money in the market first. Brokerage fees should be reevaluated once you have progressed further along the learning path. When you have established yourself, you can review the rates you are willing to spend.
What does it all boil down to?
Trading commissions are still due regardless of the method of computation used. There is no such thing as a complimentary meal. Any broker worth their salt will determine how to profit from you.
For the time being, you should seek out a broker with whom you can negotiate a reasonable fee. Build a solid history of use with that profile. Turn a commission in your trading. These are the most pressing matters requiring the assistance of your Forex Robot.
Not all brokers are created alike, so keep that in mind. When choosing which trading account will provide you with the most significant benefit, you should consider more than just the fees.
Brokers offer varying degrees of service.
The larger firms have a higher perceived creditworthiness. The Foreign Exchange exchange (Forex) is an OTC exchange. No intermediary marketplace exists to ensure results. Consequently, financial institutions (banks), the leading market makers, network with other financial institutions and price aggregators. (the online retail brokers).
Capitalization and solvency are taken into account when forming these partnerships. Those who are more robust can set the prices for weaker ones.
Online broker pricing depends on the broker’s standing with financial institutions like banks because it is linked to credit agreements between each participant. And how many transactions per day the dealer makes.
More prominent FX traders benefit from tighter spreads because of their traffic.
With the brokers;
If a brokerage company has (1) a solid working connection with a line of banks and (2) the ability to aggregate the price quotes of, say, twelve banks, then it can pass the savings from the average “bid and ask” (spread) on to its retail customers.
The dealer can offer you a more favorable spread even after widening it slightly to account for their earnings. Competitors who lack sufficient financial resources cannot compete.
A top priority is finding a dealer who provides “guaranteed liquidity” at favorable spreads. When markets are liquid, traders can quickly and easily clear their positions. Every transaction should be executed as close to the market price as possible. This is worth the “fixed pip spread” price tag.
When a transaction is executed at a price different from what you were quoted, this is known as “slippage.” You don’t want the extra expense it causes. Therefore, a cheap commission with slippage is a waste of money. Slippage and pip spread would be the actual cost of the trade.
The value of a commission broker’s additional services should be considered when deciding whether or not to pay a modest commission.
Let’s pretend a broker asks for 2/10 of a pip (roughly $2.50–$3 per 100,000 unit transaction) to use their cutting-edge proprietary trading platform. In that situation, the additional service’s small commission might be worthwhile.
When choosing a Forex broker, you must consider all the available features. Even if a broker has great spreads, their interface might be terrible, or it might not be compatible with your forex robot. Your robots will be indispensable, so they must have access to a continuous stream of information.
Therefore, think about this:
How much money does the company have?
Please tell me about the company’s history.
What is the background of the company’s management?
Which institutions does your company work with, and how many are there?
How much business does it do every month?
What are the minimum and maximum order sizes for which it ensures liquidity?
* What are the reserve requirements?
If you wish to retain positions overnight, what is its rollover policy?
If there is a positive carry, does the company transmit it through?
Is there a premium added to the transfer interest rates by the company?
What kind of interface does it provide?
Is there more than one kind of order, like “order cancels order” or “order sends an order,” for example?
Does it assure that your stop losses will be carried out at the purchase price?
Is there a dealing counter at this company?
What would you do if you lost online access and a job opening presented itself?
Does the company offer real-time access to back-office features like P&L?
Conclusion:
It’s certainly not as good as it seems. You may receive a fantastic spread deal, but this comes at the expense of other advantages. But one thing is always sure: the spread is paid by the dealer and earned by the broker.
If you want the best prices, you should work with a well-established broker or brokers with solid connections with significant FX institutions.
Take a look at the rates of margins for the most used currencies. They can be as low as 1.5 cents quite frequently. If that’s the case, you might save money using a variable spread instead of a set one. You may be able to select between a set spread and an uneven spread with some brokers.
The most cost-effective trading strategy is one that generates a return. To trade successfully, you may consider giving some of your profits to a highly trusted market broker.
Please visit my website to learn more about forex trading, including access to 40 impartial evaluations.
Phil Jarvie is an experienced professional forex day trader who has put numerous forex expert adviser robots through their paces. You can find 40 such robots tested and reviewed (good and bad) and other helpful articles and training resources.
Read also: https://shreesacredsounds.com/trading/
