Accounts

Accounts

Although the movement today is towards all transaction eventually finishing in a profit and loss in US Dollars it is important to realize that your profit or loss may not actually be in US Dollars. From my observation the trend is more pronounced in the US as you would expect. 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. 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 currency you have a profit or loss 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.

It's a sad fact that for many years the forex market largely remained unregulated. Even today there are many countries that still don't regulate companies that trade forex. London has been regulated for many years and the US is now getting its act together and has also started regulating companies dealing forex. It was only recently in the US you could with no more than an Internet site and a few thousand dollars set up your own forex operation and give the impression that you were larger than you are. I am all for the entrepreneurial flair and everyone need to start somewhere but when dealing with people's money it is imperative that the company you choose is solid.

Preferably you want a company that 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 with their jurisdiction and will give you a 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. 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. 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.