Forex Trading: Hidden Obstacles (spreads, brokers, and lots)

Filed under: Learn Forex Trading |

Forex trading is very much a steep learning curve when you first begin, and in addition to having to learn how to trade in a profitable way, there are also a number of hidden obstacles that you will have to navigate.

 

One of these is something called ‘the spread’. The spread is how your broker makes their profits. It is a gap between the buy price and the sell price. In layman’s terms, it is their ‘cut’. Now, not all brokers have the same levels of spreads. However, you should not simply choose a broker because they have the lowest spread, as there are other things to consider. Some might have a flat fee per trade; others might have unreliable charts or execution. So you really have to find a middle ground and a good balance between all of these things. With regards to a broker, it might be best to go with a recommendation from someone who has been trading for a while.

 

When you are trading with your broker of choice, you will need to add the spread to your trades – especially if you are using some kind of breakout system. For example, you may want to go long at a breakout of a certain level. However, you might enter the trade due to the spread without the breakout, in real terms on the chart, having occurred. Therefore, you should add the spread to your trading level.

 

Another thing you will need to learn is how to work out your lot sizes based on your risk level. This can sometimes be a little bit complicated (see previous articles on lot sizes on this site), but it is essential if you want to trade with a certain risk level per trade (which you really should!).

 

These are just a few of the hidden obstacles facing your trading journey, and I’m sure there are many more. So tread carefully, and do not get over-confident… it is a dangerous and tricky path.

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