FOREX

When searching for a forex broker to trade with you will encounter a number of different types of firms with different capabilities, trading paths, trading resources and trading platforms available. These are the different types of brokers you will encounter when searching for one to trade with.

Dealing Desk or DD

Forex brokers that route orders through the Dealing Desk and quote a fixed spread. This type of dealer makes money thru the spread and by taking positions against the client. A Dealing Desk Forex acts as a Market Maker where they create the market for traders. When a trader decides to sell his position, they will buy it from him and when that person decides to buy the DD will sell that position. That is they always take the opposite side of the trade and create the market. The trader never sees the actual market quotes which lets the Dealing Desk brokers manipulate the quotes to wherever they need to complete the client order. Basically a dealing desk provides pricing along with liquidity and makes trades.

To list just a few of the many Dealing Desk Brokers:
10PIPS, EXNESS, Finexo Global Investments, Ava FX, TFIFX, LiteForex, Master Forex, InstaForex, Forex WebTrader, Finotec, BTrader, Forex Place (4XP), DfxTrade, Financial Pacific and WSD Global Markets.

The No Dealing Desk brokers are either STP or ECN+STP.

Forex STP Broker

STP is short for Straight Through Processing where the Forex brokers send orders from customers directly to liquidity providers. Liquidity providers are banks that trade on the Intebank. An STP brokers can have one to several liquidity providers. The greater the number of banks that the broker deals with the more liquidity is available which results in better order fills for the customers. This allows traders access to the real market where trades are executed instantly with no dealer interaction.
These are some of the Straight Through Processor (STP) brokers with highest user ratings:
Loyal Forex, eToro, Investors Europe, IamFX, JadeFX, Advanced Markets (AMIFX), 2 WayFX, EXTO Capital, 1pipfix, Divisa Capital and PCIFX.

Forex ECN Broker

Electronic Communications Network or for short ECN. This is an open exchange where the broker provides a market where many market makers, banks and traders enter bids and offers into the network where trades are completed by many providers of liquidity in an electronic trading environment. The trades are completed in the name of the broker so the traders’ identity is never known. A trader can see the best bid and offer prices in addition the market depth which is the total volume available at each strike price. Given the larger market participation the ECN broker provides tighter spreads between the ask and bid price. ECN's will normally charge a nominal fee for offering trades between clients and liquidity providers.

Some of the highly rated ECN Brokers are:
Paragon FX, Enfinium International, FXM Financial Group, Broco, MB Trading, FXOpen and Equilor Trader.

Well rated brokers that offer both STP and ECN are Black Stone, WSD Global Markets, Persepolis Capital Management, FXPRIMUS, FXBEST, SmartTradeFX, FxCompany and swiss pb.

It is important to understand the basic terminology used in Forex treading. Listed below are brief descriptions of the most common Forex terms that must be understood before you even think about getting involved in currency trading.

Appreciation  -  When the value of a currency goes up.

Ask   -  The price that a trader is willing to pay. Normally this is the lowest price a seller will accept in order to sell.

Base currency  -  The currency that is being bought or sold. An example in a trade of USDJPY the base currency is the USD.

Bear  -  Trader that expects that a given currency price will go down. Bears are sellers.

Bid  -  The price that a trader is willing to buy at. Normally is the highest price a purchaser is willing to pay.

Bid/Ask  -  The Bid is the price that you can sell at. The Ask is the price that you can buy at.

Bull  -  A trader that believes that a market will rise in value. Bulls are buyers.

Cross  -  Currencies are traded by buying one currency with another. These two currencies result in a cross such as, GDPUSD. Where GDP is purchased with USD.

Cross rate  -  The price which is calculated from the two other exchange rates. The trade rate price between two currencies which are not the official currencies of the country that the exchange was quoted in. Cross rates most often do not involve the U.S. dollar.

Depreciation/decline  -  When the value of a currency goes down against other currencies.

Exchange rate  -  Value of one currency in relation to another, as an example the Canadian dollar might be worth 0.98 USD or 0.64 GDP.

EURUSD  -  Represents that you trade the EUR against dollars. So if you buy EUR you pay in USD or if you are selling EUR you receive USD.

FX, Forex, Foreign Exchange  -  These are the common names for the exchange of one currency for another.

Interbank  -  Short-term, mostly overnight borrowing and lending between banks.

Interest rate differential  -  The yield spread of two different debt instruments with value determined in different currencies.

Leverage or Gearing  -  The buyer only pays for part of the transaction and borriows the balance.

Long  -  When one buys a currency of a particular country.

Long position  -  A position that will go up in value if the market price increases.

Liquidity  -  The ability to get out of a trade with a minimum loss. There is enough activity to complete the orders of buyers and sellers.

Margin  -  The amount of cash in ones account required when entering into a position in order to cover possible losses.

Open position  -  A position in a currency trade that has been bought but has not yet been sold. The position is closed when the currency is sold.

Over the counter  -  Transactions that takes place directly between two entities versus thru an exchange.

Pips  -  A pip is the smallest unit that a Forex cross price varies. When a GBPUSD bid is at 1.4267 and it moves up 2 pips, the quoted price will be 1.4269.

Position  -  The act of buying or selling currency cross.

Risk  -  The utilization of a trading strategy to control gains or losses within an acceptable range.

Secondary currency  -  The currency that the buyer trades the base currency against. Example is that GBP is the base currency in EURGBP.

Short position  -  A position that goes up in value when the market goes down.

Short  -  When one sells a currency of a particular country.

Speculative  -  Buying or selling hoping to make a profit instead of trading for a business related need.

Spot rate  -  The current price of a currency.

Spread  -  The difference between the price of the bid and the price of the ask.

It is possible and very probable to make from hundreds to thousands of dollars a day trading various curriencies. At the same you can also loose that much just as well. This is something that one should keep in mind before you start and every mimute of every day while you are trading. Don't learn this valuable lesson the hard way. For this reason you should start slowly and cautiously and trade with only a trusted party.

Forex trading is a very risky adventure and only those with knowledge or the proper tools can be profitable in the long run, and the long run is what is key. Anyone can be lucky and make a few good trades that results in some good returns but the hard part is avoiding the bad trades that give it all back. Not to scare you away but over 94% of people who try to trade Forex loose money and quickly give it up. That leaves only around 5 % who are successful, make money and become profitable Forex traders. But at the same time less than 10 percent of small business startups survive which means that over 90 percent of them fail.

Anyone can become a good Forex trader just like there are so many succesful small business owners there are many people making money by trading money. Forex trading is probably the best and easiest business there is and all it takes is knowledge , caution and dilagence to succeed.

First order of business is to learn as much as you can and then start trading small amounts until you find a system and strategy that works and then ramp it up.

This blog will attempt to study and discuss the various tools and strategies to be successful in Forex Trading.