Reader Email: Setting Up a Forex Account

I figure that posting the email conversations I have with readers may help other traders out there. I know that websites and blogs don't always answer all the questions you may have. While I don't have a fraction of all the answers to each question out there, I'll do my best to give whatever of my experience I think may help. Feel free to send emails or post comments. Grab my contact info here.

(Note: If I post something you send that you'd rather not have posted, let me know, and I'll remove it. Also, if you'd rather not have a question posted, give me the heads up in the email itself.)

Martin:
First, thanks for blogging. I came across your site from Jules. Great stuff, both of you.

Anyways, I read that you're also into Forex, and I'm also just getting started in Forex. I was just wondering, what service do you use, like FXCM or OANDA, or if you have any good recommendations. Thanks.

My Reply:

I've only been trading forex for about 3 months or so, but I've enjoyed using FXCM's platform. I have a micro account. You can open one for $25 and trade using their software, which isn't bad software at all. I prefer it over any of the web browser based platforms. For the micro world, I'd definitely suggest FXCM (although they do charge $10 if you want them to send you a check) because it's a good place to start; they also offer paper trading accounts, which are good if you'd like to get your feet wet. I know there are many, many options though. I'm thinking about trying FxClub because they offer spreadless trading. Instead of profiting from the spread, they make money by commission only if you profit from your trade. They charge $0.40 for each profitable trade.

Jules has been doing this much longer than me, so she may have some good suggestions. Thank you for reading the blog and I'm glad you like it. If I can help you with anything else, just send me an email.

Take care,

Ryan

Martin:

Hey Ryan,

Thanks for your answer. I have a few more questions if you don't mind. Can you explain the difference between a micro account and a standard account. Is the platform in FXCM the same for both account. And finally, do you know of any hidden fees from FXCM besides the one you've mentioned ($10 charge for check). I really appreciate your answer because sometimes, as you know, these companies don't tell the facts. Thanks.

Martin

My Reply

Martin,

You're welcome. I haven't opened a standard account with FXCM yet, but if I understand correctly they both use the same platform. The main difference between the two is that with a micro account you're trading much smaller lots ($1000 lots) while with a standard account you're trading ($10k or 100k lots). Obviously you don't need that much in you're account because of leverage. I think that the standard accounts get slightly better deals on the spread because you're trading a larger amount and the company doesn't have to skim as much to make a nice commission. I guess that would be another hidden fee. I don't know how much you've learned about forex trading but while there's no commission you're going to be paying a small amount called the "spread." FXCM has low spreads compared to some I have seen, but their advertised spread of 1.8 or whatever it is for the EUR/USD pair averages something around 2.8pips or so. I've seen it as low as .5 but it can frequent the 2.5-3.8 range quite a bit. Other than that, I can't really think of any hidden fees.

If you've read this far (heh, hope I haven't written too much) then you should click the following link (http://www.forexmicrolot.com/cnbc.jsp). Sign up through that form and you should be able to get a free $25 micro account through FXCM. When I did it I didn't even have a CNBC whatever account, and it wasn't that long ago. Hope it works if you try it.

Take care and feel free to email me again,

Ryan

Martin:

Hi Ryan,

Thanks once again.

I'm actually pretty new to FOREX as well, and I only understand the basics. I'm currently deciding which account I should sign up for, the micro or the regular. I'm planning to trade the same lot size and even leverage. The micro would be nice, because it requires less deposit and I can deposit more if I want to. Since I'm new to Forex, I don't want to just put $2,500 (min requirement) for the regular account. You did brought up a good point saying that the standard accounts might slightly get better deals on spread. I will take a look into this. Anyways, thanks for your help. Btw, if you don't mind me asking, are you also new to investing, or just in Forex?


Martin

Martin:

I just chatted with a representative at FXCM. I just learned more about the difference between a micro and a regular account. Just in case you are also wondering,

M: Hi, for micro accounts, can I also trade in 10k lot size?
Deric: yes, you can
Deric: you can type in the lot size in the amount K window
M: so, if my lot size can be adjusted as well as leverage, what is the main difference between a micro and a standard account?
Deric: no customization for Micro accounts since it's a discount account set up
Deric: biggest difference is no restrictions on setting stops and limits, 24/7 live client services, phone in trading
M: what is customization?
Deric: all of the above is for Standard (10k) clients
Deric: standard (10k) accounts can customise the leverage for the account
M: you mean, in a micro account, i cannot adjust the leverage?
Deric: no
M: and what kind of restrictions are you referring to?
Deric: such as stop and limit
Deric: Standard accounts you can place those close to your entry price and you can place trades within the spread
M: but can you still set stops and limits in micro even if they are not close to the spreads?
Deric: no, there are restrictions on the Micro account

So I guess, you can't make stops and limits in micro accounts? Can you confirm this? Thanks.

My Reply:

I'm fairly new to both. Been following the US stock market on and off
since March 2008 and more extensively since I started my site. I've
been doing forex for about three months.

As for your question on stops and limits, you are definitely allowed
to use them on micro accounts. The thing is the program won't let you
put them too close to your entry price. So, say you want to limit your
losses and you put in a stop, you won't be able to put it closer than
~7.5pips (or $0.75) away. Though, you can always trade in and out at
any time manually.

Personally, if you're a little unsure, I'd recommend giving their
demo/papertrading account a try. You won't have to risk any money and
you can see how things work by paper trading. It's the safest way to
learn the ins and outs of the forex market and after that you can
decide how much you want to begin with.

Take care.