Forex Trading Finder™ – Forex brokers comparison

Forex trading has many advantages for the right trader, starting with the fact that forex markets are highly accessible with many open 24 hours a day. Unlike the Australian Stock Exchange, for example, which only offers normal trading between 10am and 4pm on business days, the global forex market runs around the clock (but not on weekends).

This means foreign exchange prices are constantly going up and down and there are plenty of opportunities for traders.In addition, because forex is a leveraged product, individuals can trade on the market for a smaller initial outlay. In order to place a trade, you only need to spend a small percentage of the full value of your position, which means there is a much higher potential for profit from a small initial outlay than in some other forms of trading. Unfortunately, this also means there is a greater risk of suffering a loss.

Just like trading regular shares through an online broker or broking platform, you need to make yourself fully aware of the fees and charges that apply before you begin trading forex. To start with, compare the margin you will be required to meet in order to make a trade with a range of providers. This could be 0.5%, 1% or some other figure, and this will affect the amount of money you will have to spend to open a forex position. For example, if your account has a margin of 1%, a trade worth $100,000 will require you to spend $1,000.

In addition, some providers charge a commission for every trade you make. These fees are generally be quite low, such as a few cents per thousand dollars. However, some providers will not charge any commissions on your trades. Other fees may apply to credit and debit card payments.

Finally, you will also need to consider the spread, which is the difference between the buy and sell prices for each currency pair and is effectively what a broking platform will charge you to make a trade. Look for a trading platform that offers tight spreads to minimise the cost involved.

What types of currency pairs are there?

A currency pair is always structured in the same way, following a universally accepted ranking order and always showing the value of a base currency (the first) being traded against a quote (the second) currency.

There are three types of currency pairs that you need to be aware of, these being the majors, minors and exotics.

Major currency pairs

The major currency pairs are considered any market that features the US dollar. The majors are the most frequently traded currency pairs and are therefore the most liquid forex markets to trade.

As a forex trader, this liquidity means that the majors feature relatively stable prices and the lowest spreads – or brokerage costs – when taking a position in any of these currency pairs.

The US dollar is the world’s leading reserve currency and is involved in about 88% of currency trades globally. Drilling down one step further, the EUR/USD currency pair is the most heavily traded and therefore most liquid currency pair in the world. If you’re going to open a forex trading account, this is the pair to start trading first.

Minor currency pairs

If a currency pair doesn’t feature the US dollar, it's considered to be a minor currency pair. The minors are sometimes called currency crosses because the market means you’re no longer required to first go through US dollars, as was once the case.

The minors aren’t as liquid as the majors, meaning you’ll see that they move more erratically and have wider spreads displayed on your forex trading account.

The most widely traded minor currency pairs consist of pairs in which the individual currencies are also majors. Some of the more popular minors are EUR/GBP, GBP/JPY and AUD/NZD.

Exotic currency pairs

The final type of currency pair is known as an exotic. The exotics are essentially minors that feature currencies of emerging market economies.

The nature of emerging markets is that they’re less stable and much more illiquid as a result. This means that when it comes to trading exotic currency pairs, you’ll experience wild price swings and much wider spreads.

Keep in mind that the wide spreads mean you may not see your trade executed at the price you expect. When you’re trading exotics, you need to make sure you know what you’re doing and manage your risk accordingly.

Which currency pairs should I trade?

Picking the right currency pairs to trade on your account depends on your experience as a forex trader. If you’re new to the game, it’s best to stick with the major and minor pairs. This is because the markets are much more stable and you’ll get lower spreads. Exotic pairs are more difficult to work with because they’re much more erratic and their low liquidity means you’ll see higher spreads.

Whichever currency pairs you decide to trade, simply make sure you’re managing your risk. It’s imperative to understand that while the opportunity for moves may be larger in the exotics, this also means that your risks are amplified if the market moves against you.

Just like with any other form of investment, there are several strategies you can consider when trading forex, ranging from the basic right through to quite complex approaches. One strategy traders can use is to perform technical analysis or fundamental analysis to try and accurately predict the future performance of currency pairs.

Another common strategy is known as the day trading strategy, and it is based on the simple premise that you do not hold any forex positions overnight. Because the longer you hold open a position the greater risk of you suffering a loss, traders can close all the positions they hold before the end of the trading day and therefore minimise risk.

A third common strategy is support and resistance levels. This involves researching the past fluctuations of a currency and using them to predict future price movements. The previous upper limit of a price is its resistance limit and the previous lower limit is its support limit. This can help traders make an educated guess as to when a currency's value may rise or fall.

Before you start trading forex you should make sure that you are well aware of all the risks involved with this sort of trading. These include:

• Even though you only have to pay a small percentage of the value of your trade upfront, you are still responsible for the entire amount.
• Foreign exchange rates are volatile and can quickly move against you, causing you to lose a significant amount of money.
• As markets are open 24 hours a day, you may need to devote plenty of time to tracking any open positions.
• Predicting currency markets is quite difficult as they can be affected by a wide range of factors.
• Even stop loss orders which are designed to minimise your losses can only offer limited protection against the risks involved.