I’ve received a letter from a reader asking me to help him chose between two forex brokers. Before getting into the details, I asked him if he had tested those brokers with a forex demo account. I was surprised that he didn’t even consider it. This is very important: you should always test a broker with a demo account.
About two months ago, I wrote about this issue in a post titled Forex Demo Account – A Must for Every Broker.
A forex demo account enables you to get to know the broker’s software before putting real money in. Who would want to lose money just because he missed an important button? Who would want to throw cash stupidly?
My opinion regarding this method of testing hasn’t changed. It even got stronger.
Three weeks ago, new regulations have been imposed on forex traders that work with American brokers. With the new First In First Out (FIFO) rules by the NFA, forex software now includes new restraints that are supposed to prevent the possibility of hedging.
Some brokers have fully adapted to the new rules, some promised that they bypassed them elegantly while others just send you to their foreign subsidiaries. These new NFA regulations are confusing. Here’s a post about dos and don’ts regarding the new NFA rules.
Forex trading takes time to learn, and is complicated enough before these new rules. When adding this new level of complexity (at least for American brokers), it’s very very important to take the time and test your new broker before putting in real money.
Further reading:
- A special page concentrating all the articles regarding a forex demo account.
- If you wish to go straight to the first article about it, here’s why a forex demo account is good for technical analysis.
5 Comments
Great post! I've never hedged, so that part of the FIFO rules doesn't bother me. It's much better to either take your loss if you are wrong, or to use what I call "The Sentinel" order. If you are trading with a major trend, and get stopped out of your position, you wait for price to move against you by .3ATR (D1 14 period) Then place the same order again. This gives price room to breathe against you and places your trade in right direction at a much better price. All you lose ios the spread. I'll pay the spread for a better entry price any day!
Thanks for the compliments Tim. I've just submitted this post to Forex Factory.
Yup, hedging is problematic.
Your "Sentinel" order seems a very interesting and profitable method for "revenging" when you're bounced. I'm expecting a post on your blog about this issue…
Pingback: Forex Demo Account – When to go Live | Forex Crunch
Pingback: Forex Scams - 7 ways to avoid them | Forex Crunch
Pingback: When Should You Switch from a Forex Demo Account to a Live Account?