Although the movement today is towards all transactions 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.
As you would expect, and also from my observations, this trend is
more pronounced in the US. 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 that 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 lost 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 to 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 he operates. Check that he is insured or bonded and has
some kind of track recorded.
I cannot advise you on which broker you should use as there are just
too 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 they will give you that list.
They probably won’t tell you who 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 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 that basically state
your acceptance of their polices. This can range from a single 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 need 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
