forex Lesson 5 – Choose the broker technical details
In Lesson 4 we have presented some characteristics to be taken into account in the choice of the broker but we have sent you to this lesson for those more techniques for which there is a need for a more thorough analysis. The features that we will talk about in this lesson in order to choose the brokers that best suit your needs are:
The lot limits to operate
The type of platform
2 Rollover Rates
3 lot limits to operate
4 Type of platform
Although we will go back several times and for several reasons on this subject, it is good to familiarize yourself with the spreads right away. In the past lessons we have seen in what is the spread, that to synthesize we can define it as the difference between the purchase price and the selling price of a certain currency pair. This difference constitutes the profit of the broker so the higher the spread, the more the broker earns. Of course, the more you earn the more broker, the more we pay, so you need to find a broker with minimal spreads, significantly low.
Now, being the spreads of the “sources of income” that come from the individual transactions, the broker will be in any case interested in the fact that you do more possible operations, and therefore will do the “cheering” for you. Moreover, it should be considered that the more the broker is “populated” than trader, the more it will gain from individual operations and therefore lower can set the spreads. For this reason, if you choose a “big” broker, you can count on the lowest spreads.
To explain what rollover rates are we start with the word “rollover” which means “renewal”, which is the end of a loop for the start of another. As far as Forex is concerned, rollover consists of extending the settlement date of an open position (e.g. buying position or “long” on the EUR/USD). In Forex all operations must be closed within the US 17 hours, which constitutes the settlement date. An operation that remains open after this time will be subject to rollover, renewal for the next day. This operation is subject to a rate, called the rollover rate (positive or negative) that we will see better in an article dedicated to it.
Lot limits to operate
Presented so it seems really difficult to understand what you are talking about, but in practice it is really much simpler. In practice, when negotiating on markets, including Forex, there are minimal lots to negotiate with. For lots, we mean the quantities of securities or in this case of currencies. It is easier to explain it for actions: for example, if we want to buy Telecom shares with CFD, we can do it with a minimum lot of 100 shares, or we can not buy 50 shares but at least 100. This is the minimum lot to operate.
Type of platform
The type of platform depends on the type of broker, which usually specializes in only one type of platform (exceptions are there, such as Markets.com which also manages Top Option). “Typology” can be understood or the large categorization “CfD” opposed to that “binary options”, or the type of platform/broker only with regard to CFD. For example, in the world there are totally automated platforms, some not, other mixed. In Forex there are two large types of brokers such as market maker and ECN. A good example of a CFD platform is Plus500.
Market Maker-Type brokers create the market (they are market makers, in fact) so the trades are among those who operate with the same platform of the broker, in a sort of micro market parallel to that of Forex.
ECN-type brokers are safer and provide for the acceptance of the order imparted by the customer (you) and execution if this is possible.