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Protect Your Wealth from the Crashing Dollar!
The US Dollar has lost 33% of its value against the Euro since Feb, 2006 and 18% just since August 2007. If that doesn't frighten you, then you should also know that since Jan 2005, the US Dollar has lost 53% of its value against the Brazilian Real (the currency of a third-world country) and industry experts say it is going to get much worse. Most people don't realize this but the depreciation of the US Dollar is responsible for over 40% of the recent rise in oil & fuel prices. The other 60% has been caused by investors and speculators rushing to oil commodities to hedge against the crashing dollar, further pushing the price of oil and other commodities even higher.
A simple way YOU can protect yourself against the crashing dollar is to simply invest in other country's currencies. Trading or Exchanging currencies as an investment or hedge is often called Forex Trading (short for Foreign Exchange trading). Thanks to the internet, forex trading can now easily be done from the comfort of your own home. The most powerful part about online foreign currency trading is that you can leverage or trade up to 200 times your cash balance. This means you can purchase up to $10,000 of currency with just $100 on deposit. To put this into perspective, if you had purchased $10,000 worth of Euros in Feb 2006, you would have made approximately $3300 profit in USD as of July 17th, 2008 and you could have done this with a small investment of just $100 USD. While I personally don't recommend leveraging to this extreme, you can quickly see the potential in foreign currency trading (also known as Forex Trading for short).
Online Forex Trading can be done through a multitude of forex
brokers, such as FXCM, Oanda, Gain Capital, and FX Solutions but you
should read this entire page before choosing which broker you want to
trade with. As explained above, the benefit of forex trading through a forex brokerage firm is that you can trade much more money than you actually have on deposit, up to
200 times and up to 400 times in some cases! This is done by opening a margin account with the forex broker. Margin is what they call your funds on deposit, which the broker holds as collateral for your trades. The broker then loans you up to
200 times your deposit to trade foreign currency, which is done 100% electronically from the comfort of your home over the internet or by placing a quick phone call to your forex broker. There are many forex brokers to choose from and you should choose one carefully, which we will go over in the paragraphs below. The best part is that you can practice currency trading without risking a dime of your own money through a Demo trading account, which looks and feels just like a real currency trading account, except you're trading play currency instead of real currency.
Before Opening a Forex Demo Account....
Before you open a Forex Demo account for currency exchange trading, you should first do some market research and decide which forex broker you would like to do your live currency trading through. Even though you won't be trading any real currency through a forex demo trading account, you don't want to spend the time and energy getting comfortable trading on a paticular broker's forex trading platform unless that's the forex broker you will be trading real currency through. For this reason, you must first decide which forex broker you would like to trade currency through and there are quite a few forex brokers to choose from, but hopefully the information on this page will narrow it down a bit. Later on we will go over some forex brokers you should avoid but for now, we will focus on what you should be looking for.
When choosing the best forex broker for you, many forex traders merely look at the dealer's spread fees, the price difference between the Bid and Ask price (or the Buy and Sell price). Since most forex brokers don't charge any trade commissions, most of their income is generated through the spread, which usually varies from 2-5 pips. This translates to approximately $2 to $5 per $10,000 in trade volume. However, while most novice forex traders will merely look at the spread fees that a particular forex broker will charge, they neglect the more important things like "is the Forex Broker regulated?", "What is the Forex Broker's financial strength?" "How many lawsuits has the broker been involved in?" and so on. Perhaps one of the least important things is the broker's actual fees, unless you have a trading style that makes many forex trades per day.
Whether you're shopping for a forex broker or just looking to open a free forex demo account, here are some very important things you should be looking for in your research. I have listed them below in the order of importance (based on my personal opinion and experience)...
1. Forex Broker's Financial Strength
2. Forex Broker's Lawsuits (most settle out of court to keep their CFTC/NFA record clean)
3. Is the Broker a registered member of the NFA and regulated by the CFTC?
4. Forex Broker's Ethics
5. Spreads, Fees, and Commissions
6. User-Friendliness of their Forex Trading Platform (or Forex Demo Account Software)
7. Forex Broker Financial Strength
While these are all important, the forex broker's financial strength is definitely the most important as the ultimate risk is the broker's failure as a company, which can result in a total loss of your funds. You see, forex brokerage firms are not banks. They are merely companies that hold other people's money combined into a single company bank account. While investors' funds are not co-mingled with the broker's own money and operating capital, it is mixed with every other traders' funds. Since forex brokers can be holding many millions in investor capital, and a single bank account is only FDIC insured up to $100,000, this means the remaining funds beyond $100,000 are not insured and are technically at the mercy of the broker holding the funds. While being CFTC/NFA regulated adds some protection and indirectly enforces proper business ethics, it does not guarantee that the broker will not go bankrupt. For this reason, I have put Financial Strength at the top of the list and this is also why FXCM (Forex Capital Markets) is my recommended forex broker of choice.
FXCM (Forex Capital Markets) Financial Data
On Oct 4, 2007, FXCM released their updated financial data. The numbers reflect FXCM Group’s financial strength and status as of August 31, 2007. Highlights include:
* Over $120 Million in Capital* (Assets Minus Liabilities)
* Over $96 Million In Operating Cash (Excludes Client Funds)
This release marks the second time this year that the forex broker has publicly disclosed its financials. FXCM believes that financial transparency in the retail forex industry is more important than ever in light of the NFA’s new financial requirements. Furthermore, we challenge other forex firms to follow our example.
FXCM Balance Sheet (Unaudited) as of August 31, 2007
Customer Cash: $296,474,636
Operating Cash: $96,311,380
Other Assets: $19,666,212
Fixed Assets $9,821,211
Total Assets: $422,273,439
Customer Deposits: $296,474,636
Other Liabilities: $5,662,597
Total Liabilities: $302,137,233
FXCM Capital: $120,136,206
Total Liabilities and FXCM Capital: $422,273,439
Forex Capital Markets, LLC Far Exceeds The NFA’s New Capital Requirements
The National Futures Association (NFA) has officially announced that a new increased $ 5 million capital requirement for all Forex Dealer Members will go into effect on December 21, 2007. Although this new $5 million capital requirement has yet to take affect, NFA’s president and Chief Executive Officer has already testified before congress that capital level for Forex Dealer Members should be raised to $20 million.
Forex Capital Markets, LLC, an NFA member firm, is the US regulated entity of the FXCM Group. As of August 31, 2007 Forex Capital Markets, LLC had an adjusted net capital of $60,268,390.
According to Niv, “The financial resources for FXCM (Forex Capital Markets, LLC) far exceed both the recently announced increased $5 million capital requirement level as well as the $20 million capital level proposed by NFA’s president and CEO in his recent congressional testimony.”
Forex Capital Markets, LLC (FXCM) is one of the Largest Forex Dealer Members*`
More than 90,000 live accounts are traded on the FXCM trading platform
Over $200 billion in notional volume is traded each month on the FXCM trading platform
FXCM provides customer support with native speakers in more than a dozen languages in 6 offices around the world.
Registered with the CFTC as a Futures Commission Merchant, FXCM (Forex Capital Markets, LLC) has received numerous awards from the investment community, including Best Currency Broker from Shares, Best Retail Foreign Exchange Platform from FX Week and Best Foreign Exchange Specialist from Technical Analysis of Stocks & Commodities. In addition to currency trading, FXCM offers educational courses on forex trading, and provides research through DailyFX.com.
*In September 2006, FXCM held in excess of $215 million in customer funds out of a total of over $770 million held by Forex Dealer Members. While there are approximately 31 active Forex Dealer Members with liabilities to customers of approximately $795 million, FXCM holds approximately 1 out of every 3 dollars of customer funds held by Forex Dealer Members.
Approximately $700 Million In Customer Funds Traded
FXCM Group includes firms regulated across the world, including the United States, Canada, the United Kingdom, and Hong Kong. Additionally, FXCM offers its proprietary foreign exchange trading technology to banks and brokers. As of January 2008, there is in excess of $700 million in customer funds trading on platforms offered by FXCM.
Over 100,000 live accounts trade through FXCM's trading platforms from nearly 200 countries, with an average of 4,000,000 trades executed each month via its trading platforms; moreover, customer support is provided in over a dozen languages. Registered with the CFTC as a Futures Commission Merchant, FXCM has received numerous awards from the investment community, including Best Currency Broker from Shares, Best Retail Foreign Exchange Platform from FX Week and Best Foreign Exchange Specialist from Technical Analysis of Stocks & Commodities. In addition to currency trading, FXCM offers educational courses on forex trading, and provides research through DailyFX.com.
Since inception, FXCM has added over 500 employees in all areas of operation, including customer support, research, technology, and trading. FXCM has been named to the Inc. 500 list of America's Fastest Growing Private Companies in 2004, 2005, and 2006.
Because the Forex market is an over-the-counter market with no centralized exchange, not everyone receives access to the same prices or quality of execution. The world's largest banks tend to provide better prices and execution to institutions with the largest trade volume and the most solid financials. An average of over $350,000,000,000 ($350 billion) in notional volume per month is traded via FXCM's trading platform, and FXCM is one of the most well-capitalized Forex Dealer Members. FXCM is one of the oldest and largest capitalized retail online Forex brokers. As a result, FXCM has built strong execution relationships with many of the worlds largest international banks. FXCM receives and is able to pass on the benefits of size, better prices, and better execution to our clients.
Forex Broker's Lawsuits...
One of the first things any investor should do before trading futures is conduct a background check on the firms and individuals offering these products. Using NFA's Background Affiliation Status Information Center (BASIC), investors can quickly and easily check the registration status and disciplinary history of every firm and individual conducting futures business with the retail public. To perform a background check on the forex firm you are considering opening an account with, first you will need to obtain the broker's NFA ID#, which can usually be obtained from the broker's homepage. Once you have their NFA ID#, go to the NFA's website, and enter the broker's NFA ID#. This will generate a historical disciplinary report of that particular broker. Unfortunately, it does not show cases that were settled out of court.
Is the Forex Broker CFTC/NFA Regulated?
Many novice forex traders don't realize this but Forex Brokerage Firms, who conduct forex trading on the spot cash market, are not required by law to be regulated. While this may change sometime in the next few years, currently (July 2008) forex brokers on the spot forex market are not required to be regulated. Forex brokers that are currently CFTC/NFA regulated have become regulated voluntarily. Most forex brokers have chosen to become regulated just to stay competitive in the market. Forex brokers who are regulated offer more peace of mind than brokers who aren't regulated. As a result, they tend to raise much more capital from the thousands of savvy traders & investors who know not to trust an unregulated broker.
Who is the CFTC?
CFTC (Commodity Futures Trading Commission) was created in 1974 as an independent agency with the mandate to regulate commodity futures and option markets in the United States. The agency's mandate has been renewed and expanded several times since then, most recently by the Commodity Futures Modernization Act of 2000.
Today, the CFTC assures the economic utility of the futures markets by encouraging their competitiveness and efficiency, protecting market participants against fraud, manipulation, and abusive trading practices, and by ensuring the financial integrity of the clearing process. Through effective oversight, the CFTC enables the futures markets to serve the important function of providing a means for price discovery and offsetting price risk.
The CFTC's mission is to protect market users and the public from fraud, manipulation, and abusive practices related to the sale of commodity and financial futures and options, and to foster open, competitive, and financially sound futures and option markets.
Who is the NFA?
NFA (National Futures Association)
is the premier independent provider of efficient and innovative regulatory programs that safeguard the integrity of the derivatives markets.
Forex Broker Trading Ethics
This turned out to be a pretty big section and gets off the topic a bit, as I go into my personal experience with various forex brokers, so I decided to put it on it's own page. For more information on this topic, please visit Forex Broker Ethics.
The Best Forex BrokersNow that we've narrowed our list of forex brokers down to the two best ones (FXCM and Oanda), let's review their forex trading platfroms and then you can decide which broker you would like to open a forex demo account with...
FXCM's Forex Trading Platform
The price feed on FXCM's forex demo accounts is not as accurate as their live accounts so sometimes there can be price variations on a demo that will stop out a position which would have remained open on a live account. But this problem isn't isolated to just FXCM. I've found that the price feed in demo accounts with most forex brokers is not entirely accurate. This is probably because the price feed for demo accounts comes from a separate price server, which have much fewer resources to ensure it's accuracy so don't freak if the prices in your demo account don't exactly match that of any live account. Some demos are on time delays and some are just not that accurate.
Oanda has a great reputation and has always had the tightest spreads (smallest fees) of all the forex brokers that I know of, until FXCM released their new Mini Lot platform this month (July 2008). Now these two broker have about the same fees. Oanda also has a very user friendly trading platform, which also allows you to trade Gold and Silver. There is really nothing negative to say about Oanda except they aren't quite as financially strong as FXCM but are probably in the top 5 in the industry for financial strength. If you will be trading any large sum of money, or if the security of your funds is #1 on your list, as it should be, then my personal suggestion would be FXCM. However, if you have any interest in trading Gold or Silver to help hedge your crashing US Dollar, then Oanda may be the better choice.
Thanks for Reading
I hope this information has been helpful for you. If you are interested in trading Foreign Currency as a way to hedge the US Dollar or as an investment, then you may be interested in the automated trading platform offered by ProSignal.net. They offer a 99% hands-free trading platform (software) that does all the trading for you 24 hours per day. Your only job is to open an FXCM brokerage account through their website and then choose which trading strategies you would like traded on your account. The software will take over from there. You can take a look at the past-performance of all 300+ trading strategies to choose from on their website www.ProSignal.net
If you have any questions about the information on this page or forex in general, you may contact me at: ForexGuy @ earthlink.net (leave out the spaces).
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|Unique experiences and past performances do not guarantee future results! Testimonials herein are unsolicited and are non-representative of all clients; certain accounts may have worse performance than that indicated. Trading stocks, options and spot currencies involves substantial risk and there is always the potential for loss. Your trading results may vary. Because the risk factor is high in the foreign exchange market trading, only genuine "risk" funds should be used in such trading. If you do not have the extra capital that you can afford to lose, you should not trade in the foreign exchange market. No "safe" trading system has ever been devised, and no one can guarantee profits or freedom from loss.|
|Hypothetical or simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not actually been executed, the results may have under or over-compensated for the impact, if any, of certain market factors such as lack of liquidity. Hypothetical trading programs in general are benefit of hindsight. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. Substantial risk is involved.|
|Forex trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the Forex markets. Don't trade with money you can't afford to lose. Nothing in our course or website shall be deemed a solicitation or an offer to Buy/Sell futures and/or options. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed on our site. Also, the past performance of any trading methodology is not necessarily indicative of futures results. Day trading involves high risks and you can lose a lot of money.|