Which is the Best FOREX Broker for Long Term Investment or Carry Trading?

Foreign Exchange (FOREX) currency rates between Nations across the World fluctuate almost every second due to continues currency exchanges that take place in banks and similar institutions. The fluctuations, however, especially during normal days, is very marginal or only a small fraction of a cent. This is the reason why FOREX trading is usually leveraged to amplify the gain and, of course, loss. Leveraged can go to as high as 1:400 - if you have US$100, using leveraged, your purchasing power is now 400 times or US$40,000.  This makes FOREX trading extremely risky. Some professional FOREX brokers advise traders to use a lower leverage like 1:10 to lower the risk of losing big chunk of money.

Due to extremely risky nature of FOREX Trading, long term investment looks impossible. But as advised by many brokers, risk can be minimized by lowering the leverage. You can also lower the risk my depositing huge funds into your trading account. The purpose of this lower leverage or bigger fund deposit is to make you tolerate huge exchange rate fluctuations if abnormal market condition happened.

It is more practical to select a broker that offers lower leverage for your long term FOREX investment or carry trading.

You can earn from long term FOREX investment in two ways, one is from exchange rate appreciation, and two, from interest gain. To gain more from interest income, you have to buy currencies with high positive swap or roll-over rate. Examples of currencies with high positive roll-over rates are Australia, New Zealand and some developing countries like Turkey and Hungary. At 1:10 leverage, you are actually amplifying the interest that you are earning from the currency that you are holding by 10 times without putting too much risk on the possible exchange rate depreciation.

And since you will be holding currency for a long period of time, possibly weeks, months or years, it is advisable that you choose broker that offers interest income from your fund balance.

Your broker should be registered and regulated by the proper authority and should be one of the biggest in the industry. This is to ensure that your broker won’t be bankrupted and won’t take your money away.

Your broker of choice should also offer many currency pairs and include some exotic currencies like Indian Rupee, Mexican Peso, South African Rand, and Turkish Lira. Usually, exotic currencies have high interest rate.

With all of the mentioned requirement, I think OANDA is the perfect broker for long term currency investment or carry trading. They are, surely, one of the biggest and regulated in the US National Futures Authority (NFA).  They also over a lower leverage of 1:10 - 1:50 and offer interest income from fund balance. Of course, OANDA’s trading flatform can also be used for day trading, however, the interface is not that attractive as of the other brokers.

Depositing and withdrawing funds in OANDA is also easy and flexible, you can use wire transfer, paypal or credit card.

FXCM Microlot is also good for FOREX trading. They are also one of the largest in the industry, have an attractive roll-over rate, and nice trading flatform.  The leverage, however, is quite high and does not offer interest income in the unused funds.

Filed in: FOREX Trading
Local date: March, 2010

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