Using a Foreign Exchange Converter to Find the Best Broker
When you are looking for a forex broker to work with you have to consider the spreads you are being offered. While this is a good idea in theory many new traders are lost when it comes to practicing this. Of course, this is not the only factor you have to look at when you decide on a forex broker, but it is one of the important ones. It is possible to use a foreign exchange converter to help determine if you are getting a good spread and what the spread actually is.
What is a Foreign Exchange Converter?
Before you know how to use a foreign exchange converter to find a broker you have to understand what the converter is. This piece of software provides you with real time foreign exchange rates relating to two currencies. You can choose the two currencies that the converter looks at based on the currencies it lists. Not all converters will have large numbers of currencies. There are some converters that house up to 160 currencies while others only have the most commonly traded currencies.
Forex traders rarely use these applications when they are trading. These converters are generally used by individuals to determine the current exchange rate for personal reasons.
Why You Need to Look at Broker Spreads?
The next point you need to know about is why you have to look at the spreads your broker offers. The spreads are where brokers make their money and they are generally offered in two ways. The first is through fixed spreads that do not change at any time regardless of market movement. The other way is through variable spreads which fluctuate with the volatility and liquid of the market. These variable spreads can be 1.5 pips to 5 pips depending on the broker and the market.
The spreads you get can affect your overall profits and the trading strategy you use. Certain strategies require tight spreads in order to make a profit. However, other strategies are not affected much by the spreads you have. You need to determine whether your strategy will be affected by the spreads and the type of spreads you need for the strategy.
Using a Converter
When you are looking at brokers you have to compare the spreads you get from each. It is best that you compare them against each other but you first have to find out what the spread is. To do this you should use a foreign exchange converter. The first step in this process is to find the rate you are offered for the currency pairs you are going to be trading.
You should then find out what the actual exchange rate is using your converter. When you do this you need to be sure that your converter is not adding anything to the price. This is a common problem when you use free converters linked to financial institutes. Once you have the rates you should then subtract it from the rates you are offered by the brokers. The amount you have left is the spreads you are getting. This is generally a very small amount equal to 2 to 5 pips.