Currency market offers continuous opportunities
Foreign exchange (FX) is one of the fastest-growing asset classes in the retail investment community, with an increasing number of investors recognising its benefits.
According to Betsy Waters, global director, dbFX at Deutsche Bank's online FX trading platform, FX offers investors uncorrelated returns to traditional asset classes, and can play a key diversification role in a traditional investment portfolio. It is also a highly liquid market - open 24 hours a day, six days a week - and coupled with the fact that investors always trade one currency against another, it provides continuous opportunities for investors to leverage.
The FX market has grown tremendously in the past few years. The growth in the market has seen the increase in number of FX providers available for investors to choose from.
This growth and increase in choice is making it harder for investors to select a broker that not only best suits their trading needs, but is also reliable and offers value for money, Waters says.
So how can investors address this growing challenge of choice? The good news is that the retail FX community is a 'chatty' one, and there is a great deal of information available on the internet - through the likes of forums and blogs - where you can readily find information and data, and ultimately firsthand experience, from other investors and traders on the quality of services of providers - good, bad or otherwise.
Looking at platforms specifically, the tools available on it should be looked at closely. Can you manage your risk effectively by executing stop loss orders?
Are you able to trade directly from charts?, an approach popular with many traders. Reliable, fair and transparent pricing is also an important consideration. Traders must be careful to look behind the advertised price, and clearly establish the 'actual or typical' price, which is often not clear and different from the one advertised.
The level of customer service is an important factor to consider when choosing a broker. An effective way of doing so is to contact their helpdesk, Waters says. FX brokers routinely offer leverage of as high as 200 to 1.
This can have a significant impact on leveraged capital and ultimately investment returns, and reinforces the need for you to be clear on your appetite, or lack thereof, for risk, as this can help narrow the list of potential providers even further.
'There is a saying in the FX business, that you're only as good as your research. Look behind any provider and establish what kind of research you would have access to as a client,' Waters says.
Is it proprietary research, or information you could find on your own anyway? How up-to-date is it and, ultimately, how useful do you think it will be in helping you to trade?
Some providers, such as dbFX, are able to offer clients privileged access to market-leading and proprietary research from their own comprehensive research capability - offering you a distinct advantage when trading the FX markets.
Regulations are there to provide traders with the right environment in which to trade, and investors should look closely at whether a provider is regulated, and by what means.
Investors should also establish where their funds are held, and the capital strength of the provider to help ensure that they are reputable and they offer the maximum protection available.
Finally, before signing up to any provider, traders should open a demo or free-trial account and test out the platform's 'bells and whistles', and familiarise themselves with the way the system works and how it performs.
Only after a solid and prolonged 'test ride' should you narrow your choices further to the point where you are ready to make an informed, and well-considered decision on the broker you will select as your trading partner in the long term. Then, and only then, can the real trading begin.
