Bank Services, Home Loans and Trading

• Commercial bank: the term used for a normal bank to distinguish it from an investment bank. After the Great Depression, the U.S. Congress required that banks only engage in banking activities, whereas investment banks were limited to capital market activities. Since the two no longer have to be under separate ownership, some use the term "commercial bank" to refer to a bank or a division of a bank that mostly deals with deposits and loans from corporations or large businesses.
• Community banks: locally operated financial institutions that empower employees to make local decisions to serve their customers and the partners.
• Community development banks: regulated banks that provide financial services and credit to under-served markets or populations.
• Credit unions: not-for-profit cooperatives owned by the depositors and often offering rates more favorable than for-profit banks. Typically, membership is restricted to employees of a particular company, residents of a defined neighborhood, members of a certain labor union or religious organizations, and their immediate families.
• Postal savings banks: savings banks associated with national postal systems.
• Private banks: banks that manage the assets of high net worth individuals. Historically a minimum of USD 1 million was required to open an account, however, over the last years many private banks have lowered their entry hurdles to USD 250,000 for private investors.
• Offshore banks: banks located in jurisdictions with low taxation and regulation. Many offshore banks are essentially private banks.
• Savings bank: in Europe, savings banks took their roots in the 19th or sometimes even in the 18th century. Their original objective was to provide easily accessible savings products to all strata of the population. In some countries, savings banks were created on public initiative; in others, socially committed individuals created foundations to put in place the necessary infrastructure. Nowadays, European savings banks have kept their focus on retail banking: payments, savings products, credits and insurances for individuals or small and medium-sized enterprises. Apart from this retail focus, they also differ from commercial banks by their broadly decentralised distribution network, providing local and regional outreach—and by their socially responsible approach to business and society.
• Building societies and Landesbanks: institutions that conduct retail banking.
• Ethical banks: banks that prioritize the transparency of all operations and make only what they consider to be socially-responsible investments.
• A Direct or Internet-Only bank is a banking operation without any physical bank branches, conceived and implemented wholly with networked computers.

Assets of the largest 1,000 banks in the world grew by 6.8% in the 2008/2009 financial year to a record $96.4 trillion while profits declined by 85% to $115bn. Growth in assets in adverse market conditions was largely a result of recapitalization. EU banks held the largest share of the total, 56% in 2008/2009, down from 61% in the previous year. Asian banks' share increased from 12% to 14% during the year, while the share of US banks increased from 11% to 13%. Fee revenue generated by global investment banking totaled $66.3bn in 2009, up 12% on the previous year.

The United States has the most banks in the world in terms of institutions (7,085 at the end of 2008) and possibly branches (82,000). This is an indicator of the geography and regulatory structure of the USA, resulting in a large number of small to medium-sized institutions in its banking system. As of Nov 2009, China's top 4 banks have in excess of 67,000 branches (ICBC:18000+, BOC:12000+, CCB:13000+, ABC:24000+) with an additional 140 smaller banks with an undetermined number of branches. Japan had 129 banks and 12,000 branches. In 2004, Germany, France, and Italy each had more than 30,000 branches—more than double the 15,000 branches in the UK.

There are many types of mortgages / home loans used worldwide, but several factors broadly define the characteristics of the mortgage / home loan. All of these may be subject to local regulation and legal requirements.

• Interest: interest may be fixed for the life of the loan or variable, and change at certain pre-defined periods; the interest rate can also, of course, be higher or lower.
• Term: mortgage loans / home loans generally have a maximum term, that is, the number of years after which an amortizing loan will be repaid. Some mortgage loans may have no amortization, or require full repayment of any remaining balance at a certain date, or even negative amortization.
• Payment amount and frequency: the amount paid per period and the frequency of payments; in some cases, the amount paid per period may change or the borrower may have the option to increase or decrease the amount paid.
• Prepayment: some types of mortgages may limit or restrict prepayment of all or a portion of the loan, or require payment of a penalty to the lender for prepayment.

The two basic types of amortized loans are the fixed rate mortgage (FRM) and adjustable-rate mortgage (ARM) (also known as a floating rate or variable rate mortgage). In many countries (such as the United States), floating rate mortgages are the norm and will simply be referred to as mortgages. Combination of fixed and floating rate are also common, whereby a mortgage loan will have a fixed rate for some period, and vary after the end of that period.

• In a fixed rate mortgage, the interest rate, and hence periodic payment, remains fixed for the life (or term) of the loan. Therefore the payment is fixed, although ancillary costs (such as property taxes and insurance) can and do change. For a fixed rate mortgage, payments for principal and interest should not change over the life of the loan,
• In an adjustable rate mortgage, the interest rate is generally fixed for a period of time, after which it will periodically (for example, annually or monthly) adjust up or down to some market index. Adjustable rates transfer part of the interest rate risk from the lender to the borrower, and thus are widely used where fixed rate funding is difficult to obtain or prohibitively expensive. Since the risk is transferred to the borrower, the initial interest rate may be from 0.5% to 2% lower than the average 30-year fixed rate; the size of the price differential will be related to debt market conditions, including the yield curve.

The charge to the borrower depends upon the credit risk in addition to the interest rate risk. The mortgage origination and underwriting process involves checking credit scores, debt-to-income, down payments, and assets. Jumbo mortgages / home loans and sub prime lending are not supported by government guarantees and face higher interest rates. Other innovations described below can affect the rates as well.

A mortgage loan / home loan is a loan secured by real property through the use of a mortgage note which evidences the existence of the loan and the encumbrance of that realty through the granting of a mortgage which secures the loan. However, the word mortgage alone, in everyday usage, is most often used to mean mortgage loan / home loan.

A home buyer or builder can obtain financing (a loan) either to purchase or secure against the property from a financial institution, such as a bank, either directly or indirectly through intermediaries. Features of mortgage loans / home loans such as the size of the loan, maturity of the loan, interest rate, method of paying off the loan, and other characteristics can vary considerably.

In many jurisdictions, though not all (Bali, Indonesia being one exception), it is normal for home purchases to be funded by a mortgage loan / home loans. Few individuals have enough savings or liquid funds to enable them to purchase property outright. In countries where the demand for home ownership is highest, strong domestic markets have developed.

The word mortgage is a Law French term meaning "dead pledge," apparently meaning that the pledge ends (dies) either when the obligation is fulfilled or the property is taken through foreclosure.

A bank can generate revenue in a variety of different ways including interest, transaction fees and financial advice. The main method is via charging interest on the capital it lends out to customers. The bank profits from the differential between the level of interest it pays for deposits and other sources of funds, and the level of interest it charges in its lending activities.

This difference is referred to as the spread between the cost of funds and the loan interest rate. Historically, profitability from lending activities has been cyclical and dependent on the needs and strengths of loan customers and the stage of the economic cycle. Fees and financial advice constitute a more stable revenue stream and banks have therefore placed more emphasis on these revenue lines to smooth their financial performance.

In the past 20 years American banks have taken many measures to ensure that they remain profitable while responding to increasingly changing market conditions. First, this includes the Gramm-Leach-Bliley Act, which allows banks again to merge with investment and insurance houses. Merging banking, investment, and insurance functions allows traditional banks to respond to increasing consumer demands for "one-stop shopping" by enabling cross-selling of products (which, the banks hope, will also increase profitability).

Second, they have expanded the use of risk-based pricing from business lending to consumer lending, which means charging higher interest rates to those customers that are considered to be a higher credit risk and thus increased chance of default on loans. This helps to offset the losses from bad loans, lowers the price of loans to those who have better credit histories, and offers credit products to high risk customers who would otherwise be denied credit.

Third, they have sought to increase the methods of payment processing available to the general public and business clients. These products include debit cards, prepaid cards, smart cards, and credit cards. They make it easier for consumers to conveniently make transactions and smooth their consumption over time (in some countries with underdeveloped financial systems, it is still common to deal strictly in cash, including carrying suitcases filled with cash to purchase a home).

However, with convenience of easy credit, there is also increased risk that consumers will mismanage their financial resources and accumulate excessive debt. Banks make money from card products through interest payments and fees charged to consumers and transaction fees to companies that accept the credit- debit - cards.

Banks offer many different channels to access their banking and other services:

• ATM is a machine that dispenses cash and sometimes takes deposits without the need for a human bank teller. Some ATMs provide additional services.
• A branch is a retail location
• Call center
• Mail: most banks accept check deposits via mail and use mail to communicate to their customers, e.g. by sending out statements
• Mobile banking is a method of using one's mobile phone to conduct banking transactions
• Online banking is a term used for performing transactions, payments etc. over the Internet
• Relationship Managers, mostly for private banking or business banking, often visiting customers at their homes or businesses
• Telephone banking is a service which allows its customers to perform transactions over the telephone without speaking to a human
• Video banking is a term used for performing banking transactions or professional banking consultations via a remote video and audio connection. Video banking can be performed via purpose built banking transaction machines (similar to an Automated teller machine), or via a videoconference enabled bank branch.

Banks act as payment agents by conducting checking or current accounts for customers, paying cheques drawn by customers on the bank, and collecting cheques deposited to customers' current accounts. Banks also enable customer payments via other payment methods such as telegraphic transfer, EFTPOS, and ATM.

Banks borrow money by accepting funds deposited on current accounts, by accepting term deposits, and by issuing debt securities such as banknotes and bonds. Banks lend money by making advances to customers on current accounts, by making installment loans, and by investing in marketable debt securities and other forms of money lending.

Banks provide almost all payment services, and a bank account is considered indispensable by most businesses, individuals and governments. Non-banks that provide payment services such as remittance companies are not normally considered an adequate substitute for having a bank account.

Banks borrow most funds from households and non-financial businesses, and lend most funds to households and non-financial businesses, but non-bank lenders provide a significant and in many cases adequate substitute for bank loans, and money market funds, cash management trusts and other non-bank financial institutions in many cases provide an adequate substitute to banks for lending savings too.

The definition of a bank varies from country to country. See the relevant country page (below) for more information.

Under English common law, a banker is defined as a person who carries on the business of banking, which is specified as

• conducting current accounts for his customers
• paying cheques drawn on him, and
• collecting cheques for his customers.

In most common law jurisdictions there is a Bills of Exchange Act that codifies the law in relation to negotiable instruments, including cheques, and this Act contains a statutory definition of the term banker: banker includes a body of persons, whether incorporated or not, who carry on the business of banking' (Section 2, Interpretation). Although this definition seems circular, it is actually functional, because it ensures that the legal basis for bank transactions such as cheques does not depend on how the bank is organized or regulated.

The business of banking is in many English common law countries not defined by statute but by common law, the definition above. In other English common law jurisdictions there are statutory definitions of the business of banking or banking business. When looking at these definitions it is important to keep in mind that they are defining the business of banking for the purposes of the legislation, and not necessarily in general. In particular, most of the definitions are from legislation that has the purposes of entry regulating and supervising banks rather than regulating the actual business of banking. However, in many cases the statutory definition closely mirrors the common law one. Examples of statutory definitions:

• "banking business" means the business of receiving money on current or deposit account, paying and collecting cheques drawn by or paid in by customers, the making of advances to customers, and includes such other business as the Authority may prescribe for the purposes of this Act; (Banking Act (Singapore), Section 2, Interpretation).

• "banking business" means the business of either or both of the following:

1. receiving from the general public money on current, deposit, savings or other similar account repayable on demand or within less than [3 months] ... or with a period of call or notice of less than that period;
2. paying or collecting cheques drawn by or paid in by customers

Since the advent of EFTPOS (Electronic Funds Transfer at Point Of Sale), direct credit, direct debit and internet banking, the cheque has lost its primacy in most banking systems as a payment instrument. This has led legal theorists to suggest that the cheque based definition should be broadened to include financial institutions that conduct current accounts for customers and enable customers to pay and be paid by third parties, even if they do not pay and collect cheques.

A bank is a financial intermediary and appears in several related basic forms:

• a central bank issues money on behalf of a government, and regulates the money supply
• a commercial bank accepts deposits and channels those deposits into lending activities, either directly or through capital markets. A bank connects customers with capital deficits to customers with capital surpluses on the world's open financial markets.
• a savings bank, also known as a building society in Britain is only allowed to borrow and save from members of a financial cooperative

Banking is generally a highly regulated industry, and government restrictions on financial activities by banks have varied over time and location. The current set of global bank capital standards are called Basel II. In some countries such as Germany, banks have historically owned major stakes in industrial corporations while in other countries such as the United States banks are prohibited from owning non-financial companies. In Japan, banks are usually the nexus of a cross-share holding entity known as the keiretsu. In Iceland banks followed international standards of regulation prior to the 2008 collapse.

The oldest bank still in existence is Monte dei Paschi di Siena, headquartered in Siena, Italy, and has been operating continuously since 1472.

Trend lines are probably the most common form of technical analysis. They are probably one of the most underutilized ones as well.

If drawn correctly, they can be as accurate as any other method. Unfortunately, most traders don't draw them correctly or try to make the line fit the market instead of the other way around.

In their most basic form, an uptrend line is drawn along the bottom of easily identifiable support areas (valleys). In a downtrend, the trend line is drawn along the top of easily identifiable resistance areas (peaks).

To draw trend lines properly, all you have to do is locate two major tops or bottoms and connect them.

There are three types of trends:

1. Uptrend (higher lows)
2. Downtrend (lower highs)
3. Sideways trends (ranging)

About trend lines:

1. It takes at least two tops or bottoms to draw a valid trend line but it takes THREE to confirm a trend line.

2. The STEEPER the trend line you draw, the less reliable it is going to be and the more likely it will break.

3. Like horizontal support and resistance levels, trend lines become stronger the more times they are tested.

4. And most importantly, DO NOT EVER draw trend lines by forcing them to fit the market. If they do not fit right, then that trend line isn't a valid one.

Support and resistance is one of the most widely used concepts in trading. Strangely enough, everyone seems to have their own idea on how you should measure support and resistance.

Look at the diagram above. As you can see, this zigzag pattern is making its way up (bull market). When the market moves up and then pulls back, the highest point reached before it pulled back is now resistance.

As the market continues up again, the lowest point reached before it started back is now support. In this way resistance and support are continually formed as the market oscillates over time. The reverse is true for the downtrend.

One thing to remember is that support and resistance levels are not exact numbers.

Often times you will see a support or resistance level that appears broken, but soon after find out that the market was just testing it. With candlestick charts, these "tests" of support and resistance are usually represented by the candlestick shadows.

There is no definite answer to this question. Some argue that a support or resistance level is broken if the market can actually close past that level. However, you will find that this is not always the case.

If you had believed that this was a real breakout and sold this pair, you would've been seriously hurting!

Looking at the chart now, you can visually see and come to the conclusion that the support was not actually broken; it is still very much intact and now even stronger.

To help you filter out these false breakouts, you should think of support and resistance more of as "zones" rather than concrete numbers.

One way to help you find these zones is to plot support and resistance on a line chart rather than a candlestick chart.

That price should theoretically accurately reflect all available market information. Unfortunately for us traders, it isn't that simple. The markets do not simply reflect all the information out there because traders will all just act the same way. Of course, that isn't how things work.

Each trader has his own opinion or explanation of why the market is acting the way they do. The market is just like Facebook - it's a complex network made up of individuals who want to spam our news feeds.

Kidding aside, the market basically represents what all traders - you, Pipcrawler, Celine from the donut shop - feel about the market. Each trader's thoughts and opinions, which are expressed through whatever position they take, helps form the overall sentiment of the market.

The problem is that as traders, no matter how strongly you feel about a certain trade, you can't move the markets in your favor (unless you're one of the GSs - George Soros or Goldman Sachs!). Even if you truly believe that the dollar is going to go up, but everyone else is bearish on it, there's nothing much you can do about it.

As a trader, you have to take all this into consideration. It's up to you to gauge how the market is feeling, whether it is bullish or bearish. Ultimately, it's also up to you to find out how you want to incorporate market sentiment into your trading strategy. If you choose to simply ignore market sentiment, that's your choice. But hey, we're telling you now, it's your loss!

Being able to gauge market sentiment can be an important tool in your toolbox. Later on in site, we'll teach you how to analyze market sentiment and use it to your advantage like Jedi mind tricks.

Fundamental analysis is a way of looking at the market by analyzing economic, social, and political forces that affects the supply and demand of an asset. If you think about it, this makes a whole lot of sense! Just like in your Economics 101 class, it is supply and demand that determines price.

Using supply and demand as an indicator of where price could be headed is easy. The hard part is analyzing all the factors that affect supply and demand.

In other words, you have to look at different factors to determine whose economy is rockin' like a Taylor Swift song, and whose economy sucks. You have to understand the reasons of how and why certain events an increase in unemployment affect a country's economy, and ultimately, the demand for its currency.

The idea behind this type of analysis is that if a country's current or future economic outlook is good, their currency should strengthen. The better shape a country's economy is, the more foreign businesses and investors will invest in that country. This results in the need to purchase that country's currency to obtain those assets.

For example, let's say that the U.S. dollar has been gaining strength because the U.S. economy is improving. As the economy gets better, raising interest rates may be needed to control growth and inflation.

Higher interest rates make dollar-denominated financial assets more attractive. In order to get their hands on these lovely assets, traders and investors have to buy some greenbacks first. As a result, the value of the dollar will increase.

Later on in the course, you will learn which economic data drives currency prices, and why they do so. You will know who the Fed Chairman is and how retail sales data reflects the economy. You'll be spitting out interest rates like baseball statistics.

But that's for another post for another time. For now, just know that the fundamental analysis is a way of analyzing a currency through the strength or weakness of that country's economy.

Technical analysis is the framework in which traders study price movement.

The theory is that a person can look at historical price movements and determine the current trading conditions and potential price movement.

The main evidence for using technical analysis is that, theoretically, all current market information is reflected in price. If price reflects all the information that is out there, then price action is all one would really need to make a trade.

Now, have you ever heard the old adage, "History tends to repeat itself"?

Well, that's basically what technical analysis is all about! If a price level held as a key support or resistance in the past, traders will keep an eye out for it and base their trades around that historical price level.

Technical analysts look for similar patterns that have formed in the past, and will form trade ideas believing that price will act the same way that it did before.

In the world of trading, when someone says technical analysis, the first thing that comes to mind is a chart. Technical analysts use charts because they are the easiest way to visualize historical data!

You can look at past data to help you spot trends and patterns which could help you find some great trading opportunities.

What's more is that with all the traders who rely on technical analysis out there, these price patterns and indicator signals tend to become self-fulfilling.

As more and more traders look for certain price levels and chart patterns, the more likely that these patterns will manifest themselves in the markets.

You should know though that technical analysis is very subjective.

Just because Ralph and Joseph are looking at the exact same chart setup or indicators doesn't mean that they will come up with the same idea of where price may be headed.

The important thing is that you understand the concepts under technical analysis so you won't get nosebleeds whenever somebody starts talking about Fibonacci, Bollinger bands, or pivot points.

There are three basic types of market analysis:

1. Technical Analysis
2. Fundamental Analysis
3. Sentiment Analysis

There has always been a constant debate as to which analysis is better, but to tell you the truth, you need to know all three.

It's kind of like standing on a three-legged stool - if one of the legs is weak, the stool will break under your weight and you'll fall flat on your face. The same holds true in trading. If your analysis on any of the three types of trading is weak and you ignore it, there's a good chance that it will cause you to lose out on your trade.

Mini forex accounts are used mostly be people who are just starting in the forex market and don’t possess enough funds to operate a regular account. The difference could be understood from the fact that a regular account could be opened with at least two and a half thousand dollars or more while the minimum for a mini forex account starts from $25.

CONTRACT SIZES

Another advantage of mini forex account is its contract sizes. For a regular forex account, the lot sizes must be about hundred thousand while for a mini forex account the contract sizes are ten thousand. This means that mini forex contract comes out to be one tenth of the regular contracts.

ADVANTAGES OF FOREX MINI ACCOUNT

Well, there are a lot of advantages of a forex mini account. The best thing is that with a forex mini account you get to enjoy benefits that are enjoyed by the holders of regular forex accounts. Some of these benefits are small spreads, free trading platforms etc.

USING $50 TO TRADE 10,000

There is a term that is very commonly used in the world of forex mini account. It is leverage. It could be understood as a facility that allows you to trade more than your deposits. For a mini forex account, the margin deposit needed for every $10,000 lot traded is $50. Now, you do the math. A simple calculation of dividing the two quantities

would tell you that the leverage here would be 200 to 1. If you deposit just $250 in your mini forex account; it means that you can trade a maximum of five lots. Increasing the deposit to $1000 would allow you to trade a maximum of 20 and so on.

Compare this with a regular forex account. The leverage there is just 4 to 1 for account holders having $25,000 or more in their account. This means that the leverage of someone having mini forex account is fifty times higher than a regular forex account. It is true that higher leverage could not always be used but what it does is that you get some distinct advantages in terms of flexibility in changing the strategies as per the changes in forex market.

Free Forex ‘demo’ or practice accounts

Free Forex practice accounts are a service that are loved by some yet hated by others, why is this so? Surely a free practice account can be nothing but a good thing?

Not exactly so, it does have its benefits but also has it's pitfalls, in this section we will examine the pros and cons of such an account.

Lets start off by looking at the practice account. For those who may not be aware, the free practice account does exactly what it says on the tin, it lets you practice Forex trading for free, sounds great for a newbie trader and in many ways it is.

The brokers who offer a free forex practice account do so to help get people interested in Forex, nothing wrong with that since they exist to expand the number of traders in the market and on their platform. It's also a great way for the new trader to begin to learn Forex trading.

Currency trading is no simple click and go experience, several brokers have introduced no frills platforms with low minimum deposits to get the virgin trader started and one or two have taken it a step further and allowed people to open a free practice account where you can begin trading with make-believe money until you have the confidence and knowledge to risk your own hard-earned cash.

That's were the main pro of the practice account lies, in being able to learn the Forex market and key functions of trade without risking a penny! However, this is not always good news.

When trading with 'virtual' money suddenly the risk becomes less, in fact risk is nonexistent as you have an endless stream of make-believe money this means you may be more likely to risk on trades you know you shouldn't and wouldn't make in the real world.

This can lull you in to a false sense of security.

Lets say you make en extravagant risk with practice money and it comes off, so you make another big risk and that comes off too, all of a sudden your confidence is up and you feel you can start playing with your own money and taking uncalculated risks.

The Forex market has suddenly become very very appealing, if you can make this much money in the practice area imagine how well off you would be if you were using real money? This is where things go wrong, you then go ahead and open a real Forex account and deposit your own cash.

Your confidence is up and you feel like you know what you are doing. You make a risky trade with your own cash and it fails, suddenly your Forex career is over and you are sat looking at a significant loss, it seems when its your own 'real' money the practice you got with virtual cash counted for nothing.

Of course if you take things slowly and carefully you can avoid this and become a successful trader, but you have to have that self control. Practice accounts are very useful, but only if you carry out trades exactly as you would if it was real money. Never make a trade in a practice account that you wouldn't make with your own cash!

To help get around this several brokers now offer mini-accounts with deposits as low as $25. This is virtually a practice account anyway with such low deposits, however, it’s still your own cash so you are more likely to make realistic trades and not risk big time trades.

At Invest wise we feel this is the best option, sure use a free practice account for a week or two while you learn the basics of Forex trading, but then open an account and start with low funds, never jump both feet first into currency trading, success comes from patience, awareness, and discipline

The retail forex market is so competitive that just thinking about having to sift through all the available brokers can give you a major headache.

Choosing which broker to trade with can be a very overwhelming task especially if you don't know what you should be looking for.

In this section, we will discuss the qualities you should look for when picking a broker.

1. Security

The first and foremost characteristic that a good broker must have is a high level of security. After all, you're not going to hand over thousands of dollars to a person who simply claims he's legit, right?

Fortunately, checking the credibility of a broker isn't very hard. There are regulatory agencies all over the world that separate the trustworthy from the fraudulent.

Below is a list of countries with their corresponding regulatory bodies:

• United States: National Futures Association (NFA) and Commodity Futures Trading Commission (CFTC)
• United Kingdom: Financial Services Authority (FSA)
• Australia: Australian Securities and Investment Commission (ASIC)
• Switzerland: Swiss Federal Banking Commission (SFBC)
• Germany: Bundesanstalt für Finanzdienstleistungsaufsicht (BaFIN)
• France: Autorité des Marchés Financiers (AMF)

Before even THINKING of putting your money in a broker, make sure that the broker is a member of the regulatory bodies mentioned above.

2. Transaction Cost

No matter what kind of trader you are, like it or not, you will always be subject to transaction costs.

Every single time you enter a trade, you will have to pay for either the spread or a commission so it is only natural to look for the most affordable and cheapest rates. Sometimes you may need to sacrifice low transaction for a more reliable broker.

Make sure you know if you need tight spreads for your type of trading, and then review your available options. It's all about finding the correct balance between security and low transaction costs.

3. Deposit and Withdrawal

Good brokers will allow you to deposit funds and withdraw your earnings hassle-free. Brokers really have no reason to make it hard for you to withdraw your profits because the only reason they hold your funds is to facilitate trading.

Your broker only holds your money to make trading easier so there is no reason for you to have a hard time getting the profits you have earned. Your broker should make sure that the withdrawal process is speedy and smooth.

4. Trading Platform

In online forex trading, most trading activity happens through the brokers' trading platform. This means that the trading platform of your broker must be user-friendly and stable.

When looking for a broker, always check what its trading platform has to offer.

Does it offer free news feed? How about easy-to-use technical and charting tools? Does it present you with all the information you will need to trade properly?

5. Execution

It is mandatory that your broker fill you in the best possible price for your orders.

Under normal market conditions (e.g. normal liquidity, no important news releases or surprise events), there really is no reason for your broker to not fill you at, or very close to, the market price you see when you click the "buy" or "sell" button.

For example, assuming you have a stable internet connection, if you click "buy" EUR/USD for 1.3000, you should get filled at that price or within micro-pips of it. The speed at which your orders get filled is very important, especially if you're a scalper.

A few pips difference in price can make that much harder on you to win that trade.

6. Customer Service

Brokers aren't perfect, and therefore you must pick a broker that you could easily contact when problems arise.

The competence of brokers when dealing with account or technical support issues is just as important as their performance on executing trades. Brokers may be kind and helpful during the account opening process, but have terrible "after sales" support.

The first step in choosing a broker is finding out what your choices are. You don't just walk into a restaurant, knowing what to order right away, do you? Not unless you're a frequent customer there, of course. More often than not, you check out their menu first to see what they have to offer.

There are two main types of brokers: Dealing Desks (DD) and No Dealing Desks. Dealing Desk (NDD) brokers are also called Market Makers, while No Dealing Desks can be further subdivided into Straight Through Processing (STP) and Electronic Communication Network + Straight Through Processing (ECN+STP).

What is a Dealing Desk Broker a.k.a. Market Maker?

Forex brokers that operate through Dealing Desk (DD) brokers make money through spreads and by trading against their clients. Also called market makers, Dealing Desk brokers literally create a market and artificial forex exchange rates for their clients. While you may think that there is a conflict of interest, there really isn't. Market makers provide both a sell and buy quote, which implies that they are indifferent to the decision of the trader.

Since market makers control prices, it also follows that there is very little risk for them to set FIXED spreads (you will understand why this is so better later). Also, clients of dealing desk brokers do not see the real interbank market rates. Don't be scared though, the competition among brokers is so stiff that the rates offered by Dealing Desks brokers are close, if not the same, to the interbank rate.

Trading using a Dealing Desk broker basically works this way:

Let's say you place a buy order for EUR/USD for 100,000 units with your Dealing Desk broker. To fill you, your broker will first try to find a matching sell order from its other clients or pass your trades on to its liquidity provider, i.e. a sizable entity that readily buys or sells a financial asset.

By doing this, they minimize risk, as they earn from the spread without taking the opposite side of your trade. However, in the event that there are no matching orders, they will have to take the opposite side of your trade. Take note that different brokers have different risk management policies, so check with your broker regarding this.

What is a No Dealing Desk Broker?

As the name suggests, No Dealing Desk (NDD) brokers do NOT pass their clients' orders through a Dealing Desk. This means that they do not take the other side of their clients' trade as they simply link two parties together.

NDDs are like bridge builders: they build a structure over an otherwise impassable or hard-to-pass terrain to connect two areas. NDDs can either charge a very small commission for trading or just put a markup by increasing the spread slightly.

No Dealing Desk brokers can either be STP or STP+ECN.

What is an STP broker?

Some brokers claim that they are true ECN brokers, but in reality, they merely have a Straight Through Processing system.

Forex brokers that have an STP system route the orders of their clients directly to their liquidity providers who have access to the interbank market. NDD STP brokers usually have many liquidity providers, with each provider quoting its own bid and ask price.

Let's say your NDD STP broker has three different liquidity providers. In their system, they will see three different pairs of bid and ask quotes.

Their system then sorts these bid and ask quotes from best to worst. In this case, the best price in the bid side is 1.3000 (you want to sell high) and the best price on the ask side is 1.3001 (you want to buy low). The bid/ask is now 1.3000/1.3001.

Will this be the quote that you will see on your platform?

Of course not!

Your broker isn't running a charity! Your broker didn't go through all that trouble of sorting through those quotes for free!

To compensate them for their trouble, your broker adds a small, usually fixed, markup. If their policy is to add a 1-pip mark-up, the quote you will see on your platform would be 1.2999/1.3002. You will see a 3-pip spread. The 1-pip spread turns into a 3-pip spread for you.

So when you decide to buy 100,000 units of EUR/USD at 1.3002, your order is sent through your broker and then routed to either Liquidity Provider A or B.

If your order is acknowledged, Liquidity Provider A or B will have a short position of 100,000 units of EUR/USD 1.3001, and you will have a long position of 100,000 units of EUR/USD at 1.3002. Your broker will earn 1 pip in revenue.

This changing bid/ask quote is also the reason why most STP type brokers have variable spreads. If the spreads of their liquidity providers widen, they have no choice but to widen their spreads too. While some STP brokers do offer fixed spreads, most have VARIABLE spreads.

What is an ECN Broker?

True ECN brokers, on the other hand, allow the orders of their clients to interact with the orders of other participants in the ECN.

Participants could be banks, retail traders, hedge funds, and even other brokers. In essence, participants trade against each other by offering their best bid and ask prices.

ECNs also allow their clients to see the "Depth of Market." Depth of Market displays where the buy and sell orders of other market participants are. Because of the nature ECN, it is very difficult to slap on a fixed mark-up so ECN brokers usually get compensated through a small COMMISSION.

The Forex currency pairs are usually traded and quoted with a ‘bid’ and ‘ask’ price. The ‘bid’ is the price at which the broker is willing to buy and the ‘ask’ is the price at which he is willing to sell.

For example, if the USD/EUR currency pair is quoted as - USD/EUR = 1.5 and you

purchase the pair, this means that for every 1.5 euros that you sell, you get US$1. If you sold the currency pair, you receive 1.5 euros for every US$1 you sell.

Base Currency

This is the first currency quoted in a Forex currency pair. It is also known as domestic currency or accounting currency and sometimes referred to as the primary currency of a Forex currency pair. For example, CAD/USD currency pair. Here the Canadian dollar is the base currency while the U.S. dollar is the quote currency.

The price represents how much of the quote currency is needed to get one unit of the base currency.

Quote Currency

This is the second currency quoted in a Forex currency pair. This is also referred to as the foreign currency, secondary currency or counter currency.