Methods To Find A Reliable Online Forex Broker For You

Regulation - One of the first steps is to check and see if a broker is regulated by a Financial Services office or organization. A broker will usually be required to provide the license number publicly on their website and also have it readily available if a person asks for it.

If you ask a broker to provide the registration number of their regulatory body and they refuse, it raises a red flag. Another method would be to check the regulatory body's website and inquire or search for the broker. Note that different regulatory bodies enforce different rules for brokers, so researching the requirements and reliability of the regulation is also a good idea. Reviews - Another method is to find out what other people have to say about Forex brokers and their experiences with them. You can do this through forums, independent broker review websites or through word of mouth. Some websites to check might be Forex Peace Army or 100 Forex Brokers.

Type of broker - It is also important to note the kind of Forex broker you are with: dealing desk broker or a non-dealing desk broker. As a trader you should decide what type is the right one for your personal trading strategy. The main difference is that a dealing desk broker creates an internal market and trades against their clients. A non-dealing desk broker sends clients trades straight through to their liquidity providers.

Liquidity Provider (LP) list - If you do trade with a non-dealing desk broker (or an ECN + STP broker), then it's a good idea to consider their liquidity providers. These are the financial institutions that process your trades. They also have an impact on the prices you pay to open trades. The LP list determines whether a Broker is a true or false ECN broker. A true ECN Forex broker is one connected to at least one well-known and reliable LP (for example Deutsche Bank or Bank of America).

Services - What services the broker offers are other important factors to consider. Some traders cannot live without certain FX trading tools. For example, they might require VPS Forex support, FIX API setup, auto trading or Mobile trading. However, not all brokers offer the same services. As such, it is important to consider what tools your strategy requires to implement and whether the broker's policy will allow your type of strategy.

Communication - You want your broker available and willing to help at all times. Test their support out via live chats, phone calls or emails. Doing so will also allow you to enquire about the kind of products and services they offer, also test their willingness to give assistance. Having a contact within your Forex brokerage can be very useful and knowing they are available to assist in the event of any future problems is a very important factor to consider.

Futures contracts are a leveraged product. This means that it is possible to control futures contracts with a large face value by depositing a much smaller sum.

This deposit is known as 'margin' and it is a good faith deposit that is debited from a trader's brokerage account and held by the clearing house of the futures exchange, which acts as an intermediary in all futures transactions. This allows participants to act without the need to perform due diligence on counter parties. Because the clearing house acts as a financial guarantor to both buyers and sellers of futures, participants are required to post and then maintain margin, which acts as a performance-bond to ensure that both parties are able to fulfill their obligations upon termination of the contract [1].

Unlike leverage in other securities such as stocks, there is no loan extended in order to cover the remaining balance on the contract value of a futures position (as no actual purchase of any asset or commodity occurs with), and so no interest is payable as a result of trading futures on margin.

Margin requirements are specified by the exchanges and are dependent upon the contract's trading price and its volatility. It is normally necessary to post performance bond margins of between five and ten percent of the contract value.

Three Types of Margin Requirements

There are three different types of margin requirements that are commonly specified, and the distinction between them is important.

Initial Margin

This is the amount that must be deposited in order to initiate a contract and open a position. It is specified by the futures exchange.

Maintenance Margin

This is the amount that must remain on deposit once any trading losses have been accounted for, and is typically around eighty to ninety percent of the initial margin. Trader's positions are 'marked to market' by the clearing house at the end of each trading day to make sure there is sufficient margin in the account.

Day Trade Margin

Because the clearing house is only concerned with margin at the end of each trading day, the requirement for margin during the day is set by each client's broker and managed internally by the brokerage house [2]. It is common for futures brokers to specify that a stop-loss order must be in place for all positions using day trade margin.

Day trade margins are much lower than maintenance margins and allow a much higher degree of leverage to be used. By the end of the trading day all positions must either be liquidated or sufficient funds provided to meet the maintenance margin requirements of the exchange.

Margin Calls

A margin call is simply a message stating that more funds must be provided in order to meet minimum margin requirements following losses on an open position. A margin call may come either from the clearing house (communicated via the broker to their client) in the case of maintenance margins, or from the broker in the case of day trade margins. If a margin call is not met with the immediate deposit of further funds the open position will be liquidated on behalf of the client.