There is so much money being traded daily in the forex markets, making it one of the hottest investment opportunities around.
Because of this, the number of brokers is increasing and so choosing the right one can difficult due to all the advertising claiming they have the best offers etc.
Here are 5 things to consider when choosing a forex broker.
1. They comply with regulation
First and foremost, they must be a licenced broker. Speaking for the US, a reputable forex broker will be a member of the National Futures Association (or NFA) and will be officially registered with the US Commodity Futures Trading Commission (CFTC) as a futures commission merchant, as well as a retail foreign exchange dealer.
Furthermore, the NFA is an industry-wide, entirely self-regulatory organisation for the futures industry in the USA. Its main functions are to develop rules, programs and services to provide protect the market and its participants. Besides that, it is there to ensure members meet regulatory responsibilities and certain obligations.
Do your homework on the site. Just because a broker looks professional doesn’t mean that it is licensed and regulated properly.
2. The trading platform
The trading platform is the investor’s portal to the market. As such, forex traders should make sure the platform can be easily operated. It should also have all the necessary financial market analysis tools to help you with your trading.
Most importantly, they must make it easy to enter and exit trades. A well-designed trading platform will have clear ‘buy’ and ‘sell’ buttons, and some even have a “panic” button that closes all open positions. A poorly designed interface, on the other hand, could lead to costly order entry mistakes, such as accidentally adding to a position rather than closing it, or going short when you meant to go long.
Other considerations include customization options, order entry types, automated trading options, elite forex trading strategy building, back testing newly learned theories and trading alerts. Most brokers offer free demo accounts so that traders can try out the trading platform prior to opening and funding an account.
3. Account details
While every forex broker will be different, they will all have similar account offerings:
- Forex participants have access to a range of leverage amounts depending on the broker, like 50:1 or 200:1. Leverage is a loan extended to margin account holders by their brokers. For instance, by applying a 50:1 leverage, a forex trader with an account size of $1,000 can hold a position that is valued at $50,000. Leverage works in a trader’s favour with winning positions as the potential for profits is considerably amplified. However, leverage is capable of hastily destroying a trader’s account because the potential for losses is augmented as well. This leads us to the point that leverage is should only be used with caution.
- A forex broker makes money through established commissions and spreads by charging a certain percentage. Nonetheless, a lot of brokers advertise that they don’t charge commissions and instead make their money with wider spreads. For instance, the spread could be a fixed spread of three pips, or the spread could be variable depending on market volatility. For example, let’s say that a GBP/USD quote of 1.5551 – 1.5554 has a three-pip spread. This implies that once a market participant purchases at 1.5554, the position has already lost three pips of value, as it could solely be sold instantly for 1.5551. Therefore, the wider the spread, the more complicated it can be to make a profit. In fact, common trading pairs like the GBP/USD and EUR/USD will generally have tighter spreads than the more thinly-traded pairs.
- Mostforex accounts can be funded with a very limited initial deposit, even being as low as $50. Of course, with leverage purchasing power it can be considerably greater than the minimum deposit. That is one of many reasons why forex trading is so appealing to new traders and investors. Many brokers offer standard, mini and micro accounts with changeable initial deposit requirements.
- Every forex broker has their own account withdrawal, as well as funding policies. Brokers may permit account holders to fund accounts online via PayPal, simply with a credit card or via ACH payment, not to mention wire transfer, bank cheques or either business or personal cheques. Usually withdrawals can be made by cheque or by wire transfer. Those that are reputable and good forex brokers might charge a fee for each service.
It is mandatory that your broker fills you at the best possible price for your orders.
Under normal market conditions (e.g. normal liquidity, no important news releases or surprise events), there really is no reason for your broker to not fill you at, or very close to, the market price you see when you click the “buy” or “sell” button.
For example, assuming you have a stable internet connection, if you click “buy” EUR/USD for 1.3000, you should get filled at that price or within micro-pips of it. The speed at which your orders get filled is very important.
A few pips difference in price can make that much harder on you to win that trade.
5. Customer Service
Forex trading occurs 24 hours a day, so a broker’s customer support should be available at any time. Therefore, you must pick a broker that you could easily contact if and when problems arise.
The competence of brokers when dealing with account or technical support issues is just as important as their performance on executing trades.
Brokers may be kind and helpful during the account opening process but have terrible “after sales” support.
When considering a broker, a quick call can give you an idea of the type of customer service they provide, wait times and the representative’s ability to concisely answer questions regarding spreads, leverage, regulations and company details.