Earn From Stocks

Forex traders need to know about their forex brokers if they want to really start trading forex trading. There are many myths and scams that need to be exposed. Many retail forex traders are too simpleton to understand the games the forex brokers play with them.

Retail forex market is new and different from forex interbank market. Forex interbank market is only open to big players like banks, corporations, hedge funds, pension funds and other institutional investors and deals with large currency transactions.

With the advent of internet, retail forex trading became popular. Forex brokers work as intermediaries between the retail traders and the interbank market. Forex brokers popularize retail fx trading by offering online margin accounts. But beware retail forex market is not highly regulated. Due to poor regulation forex brokers can do what they want with immunity.

Know these games before you start your forex trading. The following facts can help you understand some of the games that can be played against you:

Unfair Pricing: Forex markets are Over the Counter (OTC) markets. There is no central clearing exchange. So whatever price your broker is going to quote to you, you have to take it. It will be difficult for you to find out whether the price quoted is fair or not. If you suspect that the price is not fair, choose another broker. But even with that broker there is no guarantee.

Encouraging Leverage: Your forex broker will encourage you to use a high leverage like 100-1 or 200-1. Leverage is good when you are winning but it will wipe you out in case of a loss. Most of the retail forex traders are amateurs and dont know how to handle leverage, they expose themselves and get wiped out in the market quickly. The more you lose the more your broker will make. Dont use too high leverage.

Trading against you: Your forex broker will most probably will be trading against you! Since, most of the retail trades are too small in size; your forex broker cannot immediately offset this position in the interbank market. This gives them the opportunity to trade against you. The more you lose, the more your broker makes.

Unfair practices: Just like Casinos, Forex Brokers dont like winner. If you are winning too much, your forex broker may resort to denying the service to you or complicate execution of your trades so much as to make it impossible for you to trade.

Once you know these facts, you can use a scorecard for evaluating different forex brokers. Bill Poulos, a veteran forex trader has developed one for you. Visit my Blog to read about it.