If you’re looking to invest in the foreign exchange markets, the first thing you’ll need is a currency broker. This is someone that links you, as a buyer (or seller) of foreign currency, with a seller (or buyer) of that same currency. Think of a broker like a middle-man to help you set up the trades you’ll be doing. You’ll need to be careful though – brokers don’t work for free.
What to Look For In a Foreign Exchange Broker
The first thing to watch out for when it comes to currency brokers are fees. Some brokers charge separate fees, particularly for smaller transactions, while others incorporate them into either the exchange rate, or the spread (the difference between the buy and sell price of a currency). As an example, HiFX New Zealand charges fees for transactions below approximately USD $5000. If the transaction is larger than this, then no direct fee is charged – the broker makes their money by buying the currency for a little less than it sells it for (the spread).
If you’re planning to frequently exchange small amounts, these fees can add up quickly – eating into your profits.
Another service that currency brokers may offer is information in the form of market knowledge, research and advisory services. This can allow you to make more informed and potentially better decisions. Be warned though – no-one knows for certain what currencies will rise in the future. Take any information given to you with a grain of salt. If you prefer, you can do your own research – although this will take time.
It’s a good idea to outline your investment goals and expectations, and then find a broker that fits these. For example, if you know that you’re always trading large amounts, a broker like HiFX may be right for you – since they don’t charge an additional fee for transfers over USD $5000.
Managed Forex Accounts – the Benefits and Dangers
Some brokers will offer to manage a forex account on your behalf for a fee. While this can save you a lot of time, and using their experience may mitigate some of the risk taken on, this gives you less direct experience with FX trading. Learning to understand trends and the market in general is a useful skill that cannot be attained if someone else manages your funds. Having control of your own account also gives you the ability to make your own decisions, rather than handing that control over to a supposed “expert” (you’ll quickly find that in finance, ‘expert’ is a word used fairly liberally).
There is also a risk involved. Having someone else manage your funds means that they have less incentive to give you the best possible outcome than you do – you’d be much more worried about losing everything than they are.
As an alternative, Investing in a stock index often gives you exposure to a number of different businesses and companies, which grow and create value (unlike currency) and somewhat less volatile than having a managed forex account. Furthermore, in most jurisdictions, there are fewer laws regulating the conduct of forex advisors than brokers on the stock exchange – this leads to less assurance of safety and a higher risk.
If you’re looking to send money overseas to get started – maybe to some UK currency brokers – OrbitRemit can help. When you send money online with us, you get low priced, quick transfers. Check out our calculator on the top right hand side of the screen to find out more.