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 THE ABC OF... |
Comparing forex brokers - Part 2
So you want to trade forex. You're primed to punt on the AUD/USD or the GBP/USD. Before you do, we have a couple of pointers on how to assess the competition and find yourself the perfect broker.
D. Minimum account balance and contract size
The minimum account balance is the minimum amount you need to open an account. Some forex brokers allow you to open an account and make a deposit with your credit card. While this might facilitate the account opening process for you, don't let it excite you into trading prematurely.
Some dealers offer mini FX accounts, which are smaller sized contracts - about the tenth of the size of standard contracts - highly suitable for newcomers onto the scene, or those with smaller account sizes.
The minimum trade or contract size is the smallest bet you can make.
E. Margins & leverage
In forex, the margin is the miminum amount - or deposit - required to place a trade. Think of margin and deposit as interchangeable terms.
Many brokers offer leverage of 100 to one, which means that your $1,000 deposit can get you as much as $100,000 in currency. Or, putting it another way, if you want to purchase $100,000 of USD/EUR at 100:1 leverage, you'll need to cough up the 1 per cent margin, or $1,000.
Should the currency pair move in your favour by 1 per cent, your gain is catapulted to 100 per cent - a $1,000 profit suddenly becomes a $2,000 profit. Of course, a move in the other direction means your initial $1,000 deposit is completely wiped out.
F. Trading platform
The trading platform will be either software-based or web-based, which is accessed via the Internet. If you are constantly on the move - perhaps you travel for work - then an Internet-based platform could be preferable (unless you own a laptop that is).
G. And lastly
Most FX providers offer free demonstrations, setting you up with $100,000 of play money to trade the major currency pairs over a 30-day period. If you are seriously thinking about trading FX, definitely trial it before committing real money.
And when choosing an Australian FX provider, make sure that they hold a licence and are regulated by Australian Securities & Investment Commission (ASIC).
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