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Most US
based traders assume they will see their balance
at the end of each day in US Dollars. I have even
spoken with some traders who are oblivious to the
fact the their profit might have actually been in
Japanese Yen.
Let me explain a little more. You
sell (go short) USD/JPY and as such are short USD
and Long (bought) JPY. You enter the trade at 116.10
and exit 116.90. You in fact made 80,000 Japanese
Yen (1 lot traded) not US Dollars.
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If you traded all four major currencies
against the US Dollar you would in fact have made
or lose in EUR, GPY, JPY and CHF. This might give
you a ledger balance at the end of the day or month
with four different currencies.
This is common in London. They will
stay in that currency until you instruct the broker
to exchange the currencies into your own base currency.
This actually happened to me. After
dealing with mainly US based brokers it had never
occurred to me that my statement would be in anything
other than US Dollars.
This can work for you or against you
depending on the rate of exchange when you change
back into your home currency. Once I knew the convention
I simply instructed the broker to change my profit
or loss into US Dollars when I closed my position.
It is worth checking how your broker approaches
this and simply ask them how they handle it. A small
point, but worth noting.
Nowadays most countries have regulated
forex, but it is still worth checking that the broker
who you are dealing with is regulated in the country
that it operates, insured or bonded and has some
kind of track recorded.
I cannot advise you on which broker
you should use as there are just to many variables
to each person, but as a rule of thumb, nearly all
countries have some kind of regulatory authority
who will be able to advise you. Most of the regulatory
authorities will have a list of brokers that fall
within their jurisdiction and will give you that
list. They probably wont tell whom to use but at
least if the list came from them you can have some
confidence in those companies.
Once you have a list, give a few of
them a call, see who you feel comfortable with,
ask for them to send you their polices and procedures.
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If you live near where your broker is based, go
spend the day with him. I have been to many brokerages
just to check them out. It will give you a chance
to see their operation and meet their team.
This brings up another interesting
point. When you open an account with a broker you
will have to fill in some forms basically stating
your acceptance of their polices. This can range
from a 1 page document to something resembling a
book.
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Take the time to read through these documents
and make a list of things you don't understand or
want explained.
Most reputable companies will be happy
to spend some time with you on this. Your involvement
with your broker is largely up to you. As a forex
trader you will probably spend long hours staring
at the screen without talking to anyone. You may
be the sort of person who likes this or you may
be the sort of person who likes to chat with the
dealer in the trading room. You will normally get
a call once a week or once a month from someone
in the brokerage asking if everything is OK.
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