part0063

This is perhaps one of the areas that receives the least amount of attention by new traders, both in terms of time and effort. Yet these are the people and companies you are going to send your hard earned cash to, without a second thought.

In any other business, and this is a business, you would undertake due diligence, even if only at a superficial level. So why not here? I don’t want to alarm or frighten you, but in the last few years there have been several high profile cases of brokers going bust, either through negligence, fraud or a combination of the two. Sadly, some of these have highlighted the short comings of the regulatory authorities themselves. Whilst we would all like to believe these authorities are both powerful and effective, the reality is they are often seen as incompetent and ineffectual. Within the forex brokerage world, there are still far too many firms run by one person, who only pay lip service to the various regulatory requirements. This is aside from any malpractice which occurs after you become a client, of which more later.

If the above sounds worrying - good. I have frightened you enough to make you think about this in more detail, rather than simply selecting a broker on the best spread, or the latest offer on a rebate. Even if you do your due diligence, there is no guarantee the broker won’t go bust. I have had one do just that in my own trading career, but was fortunate my capital was protected under the FSA scheme which applied at the time, (I believe from memory this covered losses to a maximum of £30,000 per account). It was a London broker, with a good reputation, and it was unexpected. So there are no guarantees. The best protection, is to ensure you keep your accounts within the thresholds offered by the various regulatory schemes around the world. It does mean having multiple accounts, as you spread your risk, and does mean it limits trade size. Personally, I would prefer to do a little bit of extra work, in return for knowing that my capital is protected, should the worst happen.

The number of online brokers seems to increase daily, with marketing appearing in virtually all the media, including both online and offline, all with one simple objective. To get you to open your account with them. And with the advertising, come all the incentives of top up funds to your account once opened, reduced commissions for a limited period, or even a small percentage return of the spread on all your trades. Remember, there is no such thing as a free lunch, as all these are factored into the spread or commissions.

I’m not saying any of these incentives are bad. Far from it. But, you have to know the type of broker you are proposing to deposit your hard earned cash with, as they are all very different, and in addition, there are a host of questions you should ask any broker before parting with any money.

The purpose of this chapter is to explain to you how orders are routed through the market, the various types of FX broker and their advantages and disadvantages, and the key things to look out for in choosing a broker. And finally to look at some of the marketing gimmicks they may use, in order to ensure you open a live trading account.

First, I want to explain briefly how an order is routed through the market, and then to look at the four different types of FX broker, and how you can differentiate between them. This will put you in a strong position to ask the right questions, before opening your account.

If we start with the order itself, and what happens as soon as you click the buy or sell button on your keyboard. In simple terms there are two ways the order is ‘filled’. In other words, the point at which it becomes a live order in the market. The order is either managed through what is referred to as a ‘dealing desk’ which is run and managed by your broker, or it is sent ‘straight through’ to the interbank market - direct if you like.

Let’s look at the first of these which is where your order arrives at a dealing desk at your broker. As the name suggests, this is a desk which is fully staffed by dealers, whose sole job is to manage orders, and to ensure they make a profit for the broker.

As such, every forex broker dealing desk will have relationships with multiple banks in the interbank market who provide all the latest quotes to the broker’s dealing desk.

Suppose you have placed an order to buy euros, as soon as the order arrives, the dealer will look at his or her prices from the various banks and try to find a quote where they can buy at a lower price and sell to you for a profit to fill the order. Once found, the order is filled and the order is live in the market, and you in turn have ‘a position in the market’.

Now, let’s suppose the market is moving fast, and you want to sell euros and you submit your order, which arrives at the dealing desk to be filled. However, in a fast moving market the dealer is unable to find a price at which he can sell and make a profit. What does he do?

In this case, the dealer rejects your order and issues what is referred to as a ‘re-quote’, rejecting your original order, (the price quoted on the screen) and quoting a worse price, which you can accept or reject. This may happen once, twice or even several times when markets are volatile, making it difficult or even impossible for you to enter a position quickly, which could mean losing profits. This can also apply when trying to exit a position.

In addition to the above issue there is yet another, and it is this. As an alternative to passing your order through to the interbank market to be filled, your broker can simply elect to take the opposite side of your position, which means you are now trading against your broker. If you have a positive position, the dealer loses, and conversely when you have a negative position the dealer wins.

It's little wonder therefore, the dealer working for the broker has more of an interest in you losing, than in you winning, as the more you lose, the more profit he or she makes for the broker. It’s that simple, and given most forex traders lose, there is little risk in taking the opposite side of most traders’ positions. In the last few months brokers have been forced to publish the performance of their clients in percentage terms, and generally you will find 75% to 80% of retail customers are on the wrong side of the market.

Moving on, every forex broker segregates their clients into two groups. The so called ‘A book ’ who generally win, and know what they are doing, and the ‘B book ’ clients who generally lose and have little or no idea of how the market works. What happens as a result, is that A book client orders are passed straight through to the interbank market, to be filled to offset the broker’s risks, whilst the B book clients are counter traded in house, in order to increase the broker’s profits.

Typically a forex broker with a dealing desk will manage between 60% and 70% of their B book clients in this way. This in turn means if the B book clients suddenly start winning rather than losing, the broker has to find a way to stop these winning positions increasing further, which is where price manipulation and stop hunting become a tactic for the forex dealer.

Let’s talk about these two issues for a moment and I will try to put this into context for you.

When your order is taken and filled by your dealer, if you are following your trading rules, you will also have placed a stop loss order at the same time. On his screen, the dealer will be able to see both the entry price, and also your associated exit price with your stop loss. Remember also, your broker is responsible for the prices you see quoted on your screen. Under normal market conditions, the prices quoted will be similar to those quoted by other brokers. After all, if they were not, clients would start to notice.

But what happens when the market is volatile, and what opportunities does this present to the dealer?

First, it is an excellent time to widen spreads dramatically and quickly, making it almost impossible to open or close positions. Some brokers even suspend their platforms, citing technical issues. I have had personal experience of this, and got so fed up I closed my account.

Simultaneously, this also gives the dealer the opportunity to take out your stop loss. Volatile market conditions provide the perfect opportunities for price manipulation and stop hunting, which in essence is your broker taking your position out of the market to make a profit for him or herself.

Whilst this practice is not as common as it once was, it still continues with the less scrupulous brokers, which is why it is all the more important to choose your forex broker with care. It's very hard to prove, either by you or by the regulatory authorities, which is why it still continues today. With so many forex traders losing, is it any wonder the brokers can afford the huge costs of attracting a constant stream of new clients. They know a large percentage are going to lose and therefore add yet more profits to their bottom line. It is changing, but only slowly.

The sad fact of life, is most traders have little or no idea of how an order is processed or indeed the type of broker they are using for their trading. If they had only taken a little time to understand how orders are managed and filled, at least they would avoid many of the disasters and malpractices which still go on.

Make no mistake. A broker with a dealing desk as I have described here, has a clear conflict of interest. The dealer on the desk is there to make a profit, short and simple, and he or she will do anything to ensure they generate profits for the broker and not for you.

To help them achieve this, you are also telling them exactly where your stop loss orders are in the market, which is generally too much of a temptation to be ignored by the dealer.

This is one of the ironies of trading in general. We are all used to seeing the authorities take an individual trader to task and make an example of them, generally to present an image that ‘all is well’. Meanwhile, malpractice happily continues in the broker world. But this is the world in which we live and as a forex trader you need to be aware of these pitfalls. So what's the answer?

There is a second way an order is filled, and this is with a 'non dealing desk' broker. In this case your order is transmitted straight through to the central interbank market, where it is filled at the best market rate with no dealer intervention. The bank that fills your order has no idea who you are.

In other words, there is no conflict of interest, as no other party is involved in the transaction with your order filled entirely electronically and at the best market price.

These are the two broad groupings for forex brokers, but in reality they fall into four ‘sub classifications’. Let’s take a look at each of these in more detail and the pros and cons of each type. The market maker, as you will see comes last in the list, and is really what we have been considering in the above, since they are effectively ‘making a market’ for you, using their dealing desk as the primary mechanism.

ECN is short for E lectronic C ommunications N etwork, and forex brokers who fall into this category will usually charge a small trading fee or commission. Remember, there is no such thing as a free lunch, and whilst ‘free trading’ may appear attractive superficially, the costs will be hidden in the spreads.

The ECN broker can therefore be considered transparent. You have paid for a service, the trade, and the broker has made his or her money. In many ways this is just like trading stocks or futures. You are charged a commission and the trade is executed. An ECN broker in the forex world works in the same way.

In return for this up front commission, they provide forex traders with a marketplace where all the participants, however large or small, can trade against each other by sending competing bids and offers into the system. In some ways, you can think of this as a ‘central exchange’ where traders buy and sell in complete anonymity and with transparency. All orders are matched between counter parties in real time, but in order for a forex trading broker to be classified as a true ECN, the brokerage must display something called DOM or ‘D epth o f M arket’ in a data window, to show clients their own order size within the system, and allow other clients to trade against those orders. In other words, forex traders should be able to see the liquidity, and execute trades accordingly. Put simply, it means transparency.

ECN brokers will always offer variable spreads, and because they do not make their money on the spread between the bid and the ask, any trading style (including scalping) should be permitted. Some forex brokers do not permit this style of trading, and as you will see, when we reach the questions to ask, this is certainly on the list. In the last few years, the terms of trading have changed dramatically and there are key questions you need to ask before opening your account to guarantee your style of trading is permitted by the broker.

An ECN broker can therefore be considered, in my view at any rate, as the purest form of broker. They make their money from the commissions charged and are therefore keen for their clients to succeed. After all, if you are successful you will trade more actively and generate more commissions for the broker. It’s a win/win situation.

However, many new forex traders have been ‘sold’ on the benefit of ‘free’ trading, and fail to realize the advantages of paying a small commission in return for a transparent and fair trading environment. It is only when forex traders have experienced their stops being hit with ‘market spikes’, irrational market moves against their positions, and endless ‘server issues’, these same traders begin to appreciate the benefits of a true ECN broker.

STP (S traight T hrough P rocessing) brokers are often referred to, as if they were ECN brokers. This is not strictly true, even though STP forex brokers do route their clients’ orders direct to their liquidity provider, or providers.

The STP broker is a hybrid of many things, and is probably more akin to a market maker (see below). In general terms, an STP broker will display his or her own quotes most of the time, which are based on the interbank rates, in much the same way as a market maker. Where the STP broker differs, is in the handling of your orders into the market. It is almost as though there is a fork in the road, with some orders going in one direction, and others taking an alternative route. In the case of the STP broker, some orders are routed into the interbank liquidity pool, whilst others will be held by the STP broker and either hedged or traded against you, a feature of the market maker.

This raises several questions, not least of which is how do you recognize which brokers are STP, and which are market makers, and if you are trading with an STP broker, how do you know where your orders will be routed or managed?

If we take the second of these questions first, there is always much debate about this, but it is generally agreed that A book clients (the successful traders) will be routed to the interbank market, whilst the B book clients (the losing traders) will be held in house. The reasons behind this are relatively simple to understand. The A book clients are more successful and will generally be trading in larger lot size, so routing these orders into the market for a guaranteed spread in return is a low risk way of managing these trades, for a guaranteed return.

The B book clients on the other hand will generally be small orders, probably losing trades, and the STP broker has the option to trade against you, or hedge in the market, but on a small size of trade and therefore lower risk. In this way the STP broker profits from losing trades from his B book clients, and from earning commissions on successful trades routed into the market.

As the name implies an NDD forex broker has no dealing desk and has more in common with an ECN broker, than a market maker broker. The NDD broker gets his liquidity quotes from the interbank market, and all orders are passed through direct into the market with no dealing desk intervention. The NDD broker has two ways to profit from the trades executed, either by charging a commission as with an ECN broker, or by increasing the spreads like a market maker. The important points to note with a true NDD broker are as follows:

As with an ECN broker, there is no dealing desk involved, and the NDD broker will not take a position against you. With no re-quotes, and interbank prices being quoted, you are always guaranteed a fast fill and transparent trading conditions, as with an ECN. In addition, true NDD brokers will continue to provide real time market quotes even during volatile trading conditions on major news releases, meaning traders are generally not restricted in their strategies with this type of broker. The main advantages and disadvantages are as follows:

Finally we have the market makers (or dealing desk) forex brokers who route client orders through their own dealing desk and quote fixed spreads. A dealing desk forex broker makes money via the spread as well as by trading against their clients. They are called market makers because they literally do ‘make a market’ for traders. When you want to sell, they buy and when you want to buy, they sell. In other words they will always take the opposite side of the trade, thereby creating the market.

This lack of transparency, anonymity, and clear conflict of interest can cause many problems, especially in fast moving markets, when dealing brokers may not have time to offset their risk. The result is often slow execution of trades, re quotes and slippage, all problems which have blighted the industry since its inception. This is not to say you should always avoid dealing desk brokers, so long as you are aware of the drawbacks and adjust your trading strategies accordingly.

So, what is it about a market making broker that creates so much debate and distrust?

First, the market maker is getting his or her feed from the interbank market, but then re-quoting you, generally with a fixed spread, with any profit built into the price. Secondly, whilst the broker is standing as counter-party to the trade, and is therefore obliged to take your order and match it with an opposing order, this is not passed into the interbank market for matching purposes, but held by the broker. As a result you are then trading directly against the forex broker which is where the conflict of interest arises. The broker will now be in a very strong position and has two choices to make. Either hedge your trade, or trade against you.

Forex hedging is standard trading practice and a perfectly legitimate way to conduct business. Hedging is simply a trading mechanism meaning ‘hedging risk’ or ‘offsetting risk’. It just means buying or selling in another market to balance the risk.

Trading against you is not, although you will probably never find out for sure. Should the broker decide to trade against you, he will almost certainly take out your stop loss at some point, delay quotes, allow slippage in quotes, freeze the trading platform in high volatile trading conditions, and finally move scalping forex traders to manual transactions which allows the broker full control over order fills and execution.

All of these tactics are employed at different times, mainly because the retail trader refuses to pay commissions on forex trading, because it has been marketed for so many years as commission free trading. As I have said before, there is no such thing as a ‘free lunch’ and I hope you can now start to see why.

Market maker brokers encapsulate many of the problems and issues we looked at earlier in the chapter. Slippage, which I did not mention, is simply another form of price manipulation, where price quotes change between that which is quoted on the screen and your eventual order. For example, you may see a price of 1.2856 for the EUR/USD and buy at that price, but when the order is confirmed it appears as 1.2858. Only 2 pips, perhaps, but multiply this by a full lot, and this is $20, or perhaps $200 in multiple lots. This soon adds up. Consider also as a scalping trader, 2 pips may be 25% or 50% of your trading target. As a longer term trader, slippage may be a minor issue, but for a scalping or short term trader it is a very real problem and is another of the price manipulation problems, all forex traders face at one time or another.

Having outlined the various types of brokers you will find in the market, please remember some of these will be hybrids of the above. The forex market is changing all the time, and it is becoming increasingly difficult to ‘pigeon hole’ brokers, as the boundaries are becoming blurred. Another reason to make sure you do ask the right questions, before opening your account so you are very clear on what your broker does, and does not do, when managing your positions in the market.

Before moving on to consider those questions I think you should ask, let me just highlight one other topic here, which is the vexed question of a demo account, its validity and some of the issues you need to be aware of.

The first thing perhaps is not immediately obvious, and certainly not if you are just starting out in the trading world, is that the demo account is the ‘shop window’ for the broker. It is the marketing tool which entices you in, and once you are in, are considered to be a ‘hot prospect’ as a new customer. The problem here is simply this. Given the demo account is the ‘shop window’ it is very unlikely you are going to see any of the issues highlighted above in terms of slippage, re-quotes, platform issues or anything else. It would not give a good impression.

Furthermore, the price feed used for the demo account, may not be the same as for the live feed, unless the broker makes this explicitly clear when asked. The question therefore is simply this. Is there any benefit in having a demo account, for any other reason than to understand how the platform works? And the short answer is no.

By all means open a demo account to learn how to use the platform, but as a general rule, it will reveal little else and certainly not how the feed and quotes will be delivered in the real world. Leading on from this, is a much bigger question, and one I am often asked, which is this - ‘should I start with a demo account to practice, or go straight to live trading?’ My answer is always the same. Start live trading as soon as possible, but with the minimum contract size available. And here are my reasons why.

First, there is no substitute for trading with real money. Trading in a demo account is not the same. You know and your brain knows this is not real money and if you lose it all, it doesn’t matter. Trading in a demo account will not generate the same emotions you will need to manage when trading live. Short and simple. You will make decisions in a demo account you would never make with your live account, simply because it is ‘play money’. It's amazing how easy it is to make money in a demo account, and how hard it is in the real account, which reinforces the point I made in the last chapter in many ways. Trading is really a mind game. In the demo account, there is no emotion. You know it, and your brain knows it.

Second, the quotes in your demo account will be very different to those in the live account and will give you a false sense of security.

Third, one argument for using a demo account is for back testing. I do not believe back testing has any value. If this is a term you have not come across before, it simply means testing a theory or tactical approach using historic data. This is something I have never done, nor propose to do in the future. The markets change second by second which is why I have explained that in your trading plan you need to take a discretionary approach, and not one based on prescribed entry and exit rules. If a strategy worked nine times when you test it using historic data, will it work on the tenth occurrence live in the market? It might, it might not. But the fact it has worked in the past is no guarantee it will work in the future. If trading were that easy, all traders would be millionaires.

By all means use any demo account to understand how the platform works, and how to execute and manage trades, but as soon as you are ready, open your live account and start trading, with one proviso, start with the smallest lot size available. If this is a micro lot, and you are a complete novice, so much the better. Using real money, no matter how small, will then create the ‘real environment’ for you, with all the associated emotions and real world quotes. This is just my personal view.

When I first started trading I spent several months in front of a chart with a live feed, not to practice any strategy, but to hone my skills on chart reading using price and volume. From there I moved to live trading the futures market at £10 per index point. An interesting way to learn, particularly as the orders were executed by phone to the floor of the exchange. A steep learning curve.

Demo accounts have their place, but only to teach you the platform, and not for testing your trading skills or tactics.

Let’s move on to consider the questions you need to ask your potential broker, and also the other places to find further information to help you make a decision. And the place to start here is with four sites as follows:

http://www.nfa.futures.org

http://www.cftc.gov/index.htm

http://www.fsa.gov.uk

http://www.fca.org.uk

The first is the National Futures Association, and the second is the US Commodities Futures Trading Commission, both of whom are involved in the regulation of forex and futures brokers around the world, but with a bias to the US. The third is the UK regulatory body, and whilst this is London based, many forex brokers, even those based elsewhere, prefer to have their companies regulated under the FSA as London is seen as both safe and secure for their clients. This has since been replaced with the FCA or Financial Conduct Authority.

On these sites you will find a wealth of information about brokers and principals. The news sections will provide the latest on regulations and also on action taken against specific brokers and why. On the CFTC site the place to look here is under Market Reports, and the section on ‘Financial Data for FCMs. Here you will find the latest monthly reports for some of the largest brokers in the world.

The sites listed above are the starting point. Many brokers around the world will be regulated locally. In Australia, regulation comes under the remit of the Australia Securities & Investments Commission:

http://www.asic.gov.au

Another popular location for forex brokers is Cyprus due to the tax advantages, and the regulatory body here is the Cyprus Securities & Exchange Commission:

http://www.cysec.gov.cy/default_en.aspx

Each country will generally have their own regulator, but those listed above are the principle ones to check first. There are many others, with several in Europe. If the broker you are considering is not listed with any of these, simply ask them for details of who and where they are listed for regulatory purposes.

I’m sure it will come as no surprise given the areas of FX broker behavior we have covered so far, the regulatory authorities are constantly attempting to tighten controls, in order to enhance the reputation of the industry. An industry which has a tarnished reputation to say the least.

As we have already seen the regulators are clamping down on leverage, and there are suggestions this is set to reduce further still. Whilst this has provided some much needed common sense to this area of trading regulation, it has also had the effect of forcing some of these brokers to set up offshore, away from the regulatory authorities. This is another warning flag. If the broker is in an ‘exotic’ location, there may be a reason, other than the tax advantages some of these locations provide. So please check these very carefully, and if the leverage being offered on the account is higher than 50:1 a second red flag.

In the same vein in the US, the NFA has been raising the bar for market capitalization over the years, to try to ensure those brokers who remain, are well funded with a strong balance sheet. The NFA has two classes of forex and futures brokers, one called FDM and the other an FCM. An FCM does not act as the direct counter party to any trades and under the current rules has a lower capital requirement of $1 million, as opposed to $20 million for an FDM. Little wonder the NFA is now closing the loophole many forex brokers have taken, which has been to declare themselves as an FCM broker and not an FDM. The deadline for the new regulations is June 30th 2013, with others due soon.

All countries will vary in both their regulatory authorities and also the controls, procedures and compensation available to retail investors and traders. The following countries all have dedicated regulatory bodies, and you will need to check according to where the brokerage is based. Make sure the brokerage is not based offshore, with some form of onshore registration address.

The countries are as follows:

Try to establish for yourself, by asking the right questions from the above, the classification for the broker. It can be a grey area, with some overlap, and it is becoming harder to distinguish one from another. If you are not sure, ask them to confirm things in writing, which should get you the right answer. You can also check out all the MT4/5 brokers at https://www.100forexbrokers.com . Here you will find all the brokers listed, their type and status and all the other information easily in one place.

Before you open your account, make sure you are clear on the trading costs. For many brokers this will generally be zero, but check the spread offered as they may be higher than others in the market. Don’t simply choose your broker on ‘free’ trading. Check also for any costs for orders particularly for stop loss, and guaranteed stop loss orders. See also rollover costs. Many brokers also offer a hybrid arrangement, of commission but tighter spreads, so don't rule these out.

Not a big issue but certainly worth checking. Internet connections can and do go down, and if you are stuck with no communication to open or close trades, this could be an issue. You should always have a mobile handy in case the trading platform goes offline at a critical point. If the company has no phone based customer service, you have no chance of trading. Always bear this in mind.

In general you will find brokers who offer free trading provide very simple platforms such as MT4 and MT5, which is the world’s most popular platform for forex traders for that reason. An ECN broker platform may be more complex.

These will form the basis of your trading, and should cover time periods from 1 minute to 1 month. Some free charting packages are awful. In my view, once you have started, you are better off paying for a good charting package rather than the free ones which are offered by the dealing brokers. If you go for an ECN broker, you will probably need to pay for them anyway.

Ask the company to provide details of how long it has been in business, and visit some of the forums for general news and reviews about the particular company. Bear in mind though, many of the comments will be from traders who feel hard done by, for one reason or another, so do take any comments with a pinch of salt. If the company has its own forum, this is well worth checking and asking the forum for any comments. Explain you are a new trader and would welcome comments. If asked in the correct thread of the forum you should get some helpful comments. In checking the company history look particularly for clues the company is owned or run by one person, or family group. A company quoted on the local stock exchange is generally a good sign, although there are never any guarantees.

This is very important and often overlooked until it is too late. Many companies will not allow traders to scalp, and some will expect you to execute a minimum number of trades per month. In addition, many companies do not like long term trades either. Please read the small print, or ask the company before you sign up, to explain the type of trading they allow, and if there are any restrictions, or required minimum numbers of trades. Simple stuff, but easily forgotten until it’s too late. Hedging is also banned by many brokers now. As I explained earlier, a hedge is simply taking a position that offsets some of the risk. See below.

Check what types of account are available. A broker who offers both micro and mini accounts is perfect, as you can start with the micro and then graduate to the mini account (or full size) as your experience grows.

Well why not. After all it’s your money. Most brokers do not pay any interest on the balance in your account, but the good ones do, so ask, but you will find more that don’t pay than do. Personally if you trade with a large balance in the account as I do, I like to see a bit of interest clicking up, even if it is only a few dollars a day.

Many brokers no longer allow you to hedge on the same pair. In other words you are not allowed to have a long trade and a short trade in the same pair. In these accounts, if you have a long trade open, and open a short trade in the same pair, the position will automatically close out, as this is how you close trades anyway (by reversing the opening trade to close). Does this matter? Well, yes if you want to use hedging trades as part of your trading strategy. A hedge trade is simply one where the risk is reduced by ‘hedging’ or protecting your position. More recently this facility has been included on the MT5 platform, so you will find brokers who offer this as an option.

Remember in forex you are trading a contract. Trades are simply speculative and are simple computer entries on a screen. It is assumed you have no desire to exercise the contract and take physical delivery of the currency, so all open contracts are rolled over automatically at 5.00 pm New York EST after each 24 hour period. At this point interest in the trade is calculated and will either be negative or positive. If it is a carry trade it will be positive, otherwise it will be negative. All this will happen automatically. You do not have to do anything as it is assumed if the position is open, you want to roll it over into the next day’s trading. In some accounts you will find transaction accounting very confusing when you close a position. I was recently invited to the launch of a new platform and it even confused the presenter.

In most accounts when you close a position the profit or loss is immediately accounted for, and the balance updated immediately. With this platform it was not, the reason being settlement dates. If you remember in the stock market we have settlement dates with are normally T + 2 days after the trade has been closed. With these sorts of forex accounts the trades are logged in your account, but are not settled in the account immediately. It can be very confusing when looking at the account as these trades will appear to still be ‘open’ when in fact they are closed. Personally I find this very confusing, and the chances are so will you, so check this out in your demo account and make sure the accounting principles that operate here, are also the same in the real account.

There’s a great deal to think about, before you choose your broker. Most new traders simply pick the one with the ‘best offer’ or the ‘tightest spreads’. Stop and think before you decide, and do your due diligence. It will save you a huge amount of heartache and time in the future.