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Broker Payment Options

 

Brokers will always be part of Forex transactions. Without the brokers, you will not be able to expand your options in currency trading. With their help you should be able to harness different currencies and use swinging spreads to your advantage. They will also facilitate some of the most complicated currency trading practices not only because of their expertise but also because of their connections.  You can be sure that they have been in the industry long before you did as they know how to work around different situations and help you improve in currency trading.



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Although you can still go on Forex investment without the help of brokers, the downside is that you will only be limited to small over the counter transactions that are slow and in very small amounts. There are independent brokers while mostly use brokers from a brokerage firm. Either way, you will still provide them compensation for their services.



Ways in Paying Your Firm

Forex brokerage firms charges through spreads. Some will charge you through fixed spreads; others will work with variable spreads while some work with commissions. Most firms will let you choose which payment form you will prefer as this will dictate on how they will work with your currency.



If you opt for fixed spread payment scheme, your broker will work on your preferred fixed spread or any spread that he recommends with your approval. For example, you or your broker will recommend a three-point spread.



All transaction processes will be done with this fixed spread. Your offer could be very attractive to other brokers but will place you on a losing end. On the other hand, having the fixed spread could get you a good yield as you begin to be very aggressive in different transactions.



The advantage of this type of payment scheme is the fixed price that you and your broker have agreed upon. You will know how much you will pay even before the transaction ends. On the other hand, setting a fixed spread is not a good practice especially if you are not really familiar with the market yet.



Variable spread on the other hand, is more industry friendly. The spread will not be dictated by you or your broker but the spread will be determined by the market. Your work will be to monitor the market movement and ask the broker to go ahead with the transaction.



The advantage of variable spread payment scheme is its closeness to commission based payment form. But you will have to deal with different fluctuations especially if your currency is not performing as expected. There will be a time that you will be losing as spread swings from time to time.



The commission based firms are very common since they offer platforms or applications that will help you monitor the real time changes of currency. The firms will usually be the “middle men” as they will forward your transactions to a market maker which will initiate the transaction. The firm will get a commission on your earnings depending on your yield. The usual setting is two-tenths of a pip or 2% of a pip. This is very small, but replicate that by thousands, your broker will have considerable earnings.



Brokers Quality

Every broker has a different characteristic, business discipline, philosophy on how to achieve and more importantly, connections. The only way brokers could be successful is through establishing as many connections as they can while getting the best deals out of those connections.



These connections are very difficult to establish that is why there are firms who could charge a little bit higher compared to other firms because of the number of connections. The successful firms could have connections in numerous banks wherein they could get the best possible buy/sell rate of your currency. Limited connections could still provide you with a good yield but don’t expect a lot of options.



Brokering firm

Based and regulated in your country – if you live in New York, you are in luck. There are a good number of brokers based in New York. That means they are also regulated in the same country where you are trading. It could be a little bit tempting to work with a firm from Europe because of the currency but you will not be provided with protection by the US government.



Availability of application/platform – this is highly recommended as almost every firm will provide you with a platform to work with which will automatically forward your choices to your broker.



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Trading practices – there are firms that regulate the type of trading practice allowed. This is often to protect themselves from bad business transactions. Your practices may not matter to you but there are legal things that you can do that might not be allowed by your broker.





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