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About dealers
In the foreign exchange market, you trade directly with the market maker or dealer that executes your trade. This enables several significant benefits:
- Low transaction costs
- Controllable leverage
- Greater transparency
- Enhanced order execution
- Low account minimums
How to select a Forex dealer
When choosing a Forex dealer, it is important to make an informed decision. Because there is no central clearing house in the Forex market, and regulation by government institutions is limited, dealers typically set their own policies. Therefore, services such as customer support, fills, costs and trading tools can vary.
The best dealer for you depends on your trading style, technique, time and money available for trading.
Below is a list of factors to take into account when selecting a Forex dealer*. Based on your individual trading style, you may have additional considerations as well.
11 factors in choosing a Forex dealer:
- Account size – A mini account (lot size of 10,000) is a good stepping stone to a standard (100,000) account, and most dealers offer both.
- Margin – Different dealers calculate margin in different ways, so it’s important to understand what you are getting into before opening an account.
- Guaranteed stop losses and entries – Know upfront whether or not a dealer provides execution guarantees for stop-loss, limit, and entry orders, and if any exceptions exist.
- Personal liability – Some dealers will hold you personally liable if your account goes negative or you are trading with too little money in your account. Be sure to understand your dealer's policy and get everything in writing.
- Regulation – Your dealer may be member of the National Futures Association (NFA). If so, you can find information about any actions against them by visiting www.nfa.futures.org. We recommend that you download and read a copy of the brochure, “Trading in the Retail Off-Exchange Foreign Currency Market - What Investors Need to Know” before you start trading the Forex market.
- Financial stability and capitalization – Forex accounts are not guaranteed by a clearing organization, so funds that you have deposited to trade Forex contracts are not insured and do not receive a priority in bankruptcy. Even customer funds deposited in a Federal Deposit Insurance Corporation (FDIC) insured bank account are not protected if the Forex dealer goes bankrupt. Therefore, be sure that your dealer is adequately capitalized.
- Spreads – Are spreads fixed or variable? Do they change when the market is less liquid, or during fast-moving markets? Spreads may also vary between mini and standard accounts.
- Execution – Understand the various execution procedures your dealer offers, and whether system trading is offered and under what circumstances.
- Trading platform – The platform should offer real quotes on the pairs you want to trade, plus entry/exit limit and stop orders, one-cancels-other orders and trailing stops.
- Support – Is telephone service available 24/7? You need to be able to trade, or at least close a position, via telephone if your computer fails.
- Interest – The procedure for crediting or debiting interest to your account can vary widely from one dealer to the next – understand your dealer’s policy.
*FXTE and affiliated companies have financial relationships with brokers and dealers in the stock, options and foreign exchange markets. whereby FXTE receives a financial benefit if an FXTE student opens an account with such broker/dealers.
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