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Knowing your trading style(s) is an indicator that you are serious about the trading business. You may have several trading styles implemented at the same time. Each style will require a different setup that should be supported by your broker(s).
Day trading style is that you open and close a trade within a market day. No open position is left overnight.
An open position could be left for seconds or minutes or hours but closing the same position should be completed by the end of the market day.
For this style of trading, you do not bother about overnight interest rates (called SWAPs or Carry Trade Interest Rates) credited or debited from your account. Detailed explanation will be provided in the Carry Trade sections below.
Scalping style is usually for traders who look for a few pip profits from movement of a currency pair taking place in a few seconds or even million seconds.
News trading is a special style that captures the usually gigantic movement of a currency pair when an economic news related to one of that currency pair is released.
This style of trading can be categorized as a day trading. But, due to the possibility of a gigantic go taking place in million seconds, finding an appropriate broker for this strategy is sometimes a hard task. The reason is that your broker is not able to hedge your open position quickly enough, and therefore have to pay for your gain from their own money. So for this strategy, it is recommended to keep your position small enough to keep yourself under the radar. Otherwise, when detected they will do anything in their power to stop you playing this lucrative game for some traders.
Carry traders attempt to capture a POSITIVE interbank overnight interest rate difference between individual currencies in a currency pair.
For example, at this time of writing in October 2010, the interbank interest rates for AUD and USD are 4.5% and 0.25% per annum, respectively. So the difference is +4.25%. If you hold a BUY position for this currency pair AUD/USD overnight, your account should be credited with an interest rate payment calculated on a daily basis. In contrast, with the same currency pair, if you hold a SELL position rather than BUY overnight, your account is debited because the difference is NEGATIVE.
Note that credit and debit are not in the same rate because brokers internally calculate them after taking out ‘a piece of the pie’ for themselves! Even some brokers debit your account regardless of POSITIVE or NEGATIVE interest rate difference! I’d stumbled on this type of broker, so run for life if your strategy is to leave an open position overnight.
So thoroughly digging in details about their carry trade conditions if you want to use this strategy.
This trading style is where your positions are held for a few days. For this style, you would have many choices of brokers because slippage and delay are a less serious problem for you as would be with day trading or scalping.
Pay attention to pros and cons of a fixed spread and variable spread brokers. Fixed spread brokers make you feel certainty about the spread cost at any time during a market day, even at news release moments. While variable spread costs could be lower at market stable times and more expensive at news releases. So knowing what time frame during a market day you trade is crucial to selecting the most appropriate broker.
For this style of trading, you hold open positions for weeks or months. You should have no problems of various brokers to choose from. But, the most vital thing that who are the liquidity providersto your broker.
When it comes to selecting a trading platform, every single trade has to choose one or more of the following criteria:
Charting
Ease of use (look and feel of a platform)
Execution of orders (one-click trading, off-the-chart trading, re-quotes, allowable distances for stops & limits, hedging, slippage)
Security (secured data exchange over the Internet against hacking and theft)
Platform stability and reliability (how regular the platform is disconnected)
Order types (Stop loss, Limit Order, Buy Stop, Sell Stop, OCO)
Mobile trading
Reporting
Most brokers offer decent charting which is free while others charge a small monthly fee. Depending on your trading strategies and style, fee-based charting includes some advanced features. But free charts have sufficient features for a honest share of traders out there. I personally use free charting as part of my brokers’ platforms and still profitable because my trading strategies are simple and does not require advanced features.
Ease of use on a platform is another factor that some brokers out there strive to do for their clients in order to differentiate them the crowd. Some traders get used to MT4 platform interface, which is well loved among traders and built from an independent vendor MetaQuotes Corporation. But, in my opinion, most platforms’ look and feel in the market today are excellent enough for most traders.
Quick execution of orders is crucial for day trading and scalping styles. For other styles it might not be that vital. Some brokers set minimum distances (usually around 10 PIPs) from the current price for stops and limits. So be careful if they impact on your trading style.
Because trading online is basically exchanging data over the Internet, so security of data such as your personal information is of vital. As a general rule, the larger and longer around a broker firm is the more money they spent so the better the security.
Order types are vital and dependent on your trading style. Most platforms today offer market order, stop order (for stop-loss setting) and limit order (for profit taking setting), GTC (Excellent Till Cancel) and GFD (Excellent For Day). OCO (One Cancels the Other) is for advanced strategies and not offered by all brokers.
Mobile trading is increasing becoming a well loved offer among brokers because it accommodates traders frequently on the go. At this point of writing, smart phones, iPhone and iPad are mobile devices that support forex mobile trading platforms. What you need to do is download Java based applicationsoftware and follow directions from your broker’s website. Minimum bandwidth requirement of your mobile device is GPRS or 3G up.
Keep in mind that information presented on a mobile trading platform is just afraction of what you get on your desktop or laptop based platform. Most traders use mobile trading platform for monitoring trades or opportunities due to limitations of such devices such as small screen, internet accessspeed.
My recommendation is to download demo platforms offered by nearly brokers’ websites and test them thoroughly. If you have any specific questions you can chat online with brokers to get answers straight away. Also be careful, some dishonest brokers give you the answers that are just to lure you open a live account with them. Another best solution is to consult with a trustworthy Introducing Broker (IB) to discuss and to get a clear understanding what you need. The IBs can help you best match your needs with various suitable platforms. By right, you should get free consultations from IBs because they are compensated by the broker firms that they are doing business with. So the key is to consult with reputable and trustworthyIBs only, in which their best interest is to add values to their clients on a long-term business relationship. As long as their clients are pleased with recommended brokers so their compensated fees.
In small, it can be categorizes two basic platforms below:
Most brokers offer their own trading platform, which could be a standalone application or a web-based or a mobile trading terminal.
Only large brokers have internal resources to develop the trading platforms themselves. Smaller brokers usually buy licenses from software developing companies offering customized platforms for theirclients.
MT4 or recently MT5 under beta test is a broker-independent trading platform developed by MetaQuotes Software Corporation for forex, options and futures markets.
Forex brokers buy licenses from MetaQuotes and customize their own versions. But, the back-end processing are still managed by MetaQuotes. The distinct features of MT4 are its support for a wide range of technical capability and enable traders to automate trading via programming language. In recent years, a new breed of automatic trading has been introduced and called Expert Advisors (EA) or simply ‘trading robots’.
The prevailing leverage for most forex brokers is 100:1. Some brokers outside U.S offer 200:1, 400:1 or even 500:1. But be careful, it seems that the higher leverages offered by brokers are to lure amateurs and gamblers in the market. And as a result, these people will lose money quicker. Please see the section ‘Broker Practices’ above for further insights. The qualified traders normally use leverage of 100:1 or even 50:1.
New ruling in U.S imposed a revised leverage of 50:1 from 100:1, effective on October 18, 2010, to all U.S. based forex brokers will certainly impact on traders who trade through U.S based brokers.
In my own encounter, the leverage of 100: 1 should be enough for most successful traders to make consistent profits while keeping risks sufficiently low.
Today most small and large brokerage firms provide the following channels for customer support:
Telephone call (fixed line, mobile and Skype)
Email
Online chat
But, again the larger firms the most likely that they have money to spent on fine-tuning their customer support process. It’s nothing more frustrating than if you need help, for example, about technical issues ordeposit or withdrawal of fund, there is no one there immediately to take your queries or give you answers. Some forex firms differentiate themselves by customer service quality.
One of the solutions is that you can consult with your trusted and experienced IB who has gone through the same problems. By this way, you can avoid lots of frustration and importantly your precious time. Your IB isworthwhile if they play a role of your first frontline consultant before contacting your broker. Again, your IB is compensated by your broker therefore they should provide you services free.
Successful forex traders are an elite group of the trading community. Remember that only 5% of traders are winners while the remaining 95% is losers no matter how time has passed and advances in technology.Some of the successful forex traders above go up to running their own forex funds. The greatest benefit of running such a fund is that you can leverage on money pool from investors who are busy with their work or passions with your trading expertise.
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