Choosing a Forex Broker - How to Choose a Good Forex Broker
All traders use a broker to handle their transactions. The trader makes a decision on which transaction to make, then places an order with a broker who then executes the order for them and earns money by charging a commission or a fee called “the spread” for their services.
Currency brokers are associated with large financial institutions such as banks in order to provide the funds and liquidity necessary for margin trading. The banks are known as liquidity providers. The banks are also the ones that provide the inter bank exchange rate to the brokers. Currency exchange is traded through a network of banks known as the “inter bank network”. Forex Brokers gain access to this inter bank network through banks, and then provide this access to retail currency traders.
A good broker should be registered with a well known regulatory authority such as CFTC, NFA, CYSEC, FCA and ASIC these authorities serve as protection measure against fraud and abusive trade practices.
Before you start you need to set up an account. You may feel overwhelmed by the number of companies that offer these services online.
Deciding on a good company requires a bit of research on your part, but the time spent researching will give you insight into the services provided and fees charged.
The best recommendation is word-of-mouth advice, and this is just as valid in currency trading as it is for any other type of business.
You also want to find a broker who executes orders quickly with minimum slippage and should offer automatic/instant execution and have clear policies regarding slippage.
Next you want to find out the fees involved i.e. The spread. If spread charged is fixed or variable. Are there other charges like commissions per lot transacted?
The industry standard for EURUSD which s the most popular currency is about 2 pips.
Margin trading is what FOREX is about, so be sure you understand the margin terms requirements before setting up an account. You need to know the margin requirements and how the margin is calculated.
Does the margin change according to the currency traded? Is it the same every day of the week or does it vary? Some brokers may also offer different margin requirements for mini and standard accounts. Some may also change their margin requirements during the weekends. Do not choose a those that changes their margin requirement during the weekends as this may mean your open position are likely to be closed over the weekend because of the changing margin requirement during the weekend. Always select the one that has fixed margin requirement at all times.
The Trading software is also very important to a trader. You can get a feel of the software options that are available by trying out demos from a few companies online. Above all, you are looking for reliability and the ability to execute transactions in fast-moving markets.
To make sure that you get fast execution from your broker make sure that you trade with the big Forex companies that have enough liquidity required to execute orders quickly. The big companies have multiple liquidity providers and these multiple liquidity providers ensure that the company that you choose can execute as many trades as possible at any one given time in a very fast and efficient manner, that way your orders do not get re-quoted.
Factors to Consider When Comparing
Before comparing brokers we recommend that you do not open an account with a USA based company, regulation by the CFTC and NFA imposes excessive and over-bearing regulations that have been imposed on USA based companies. These include reduced leverage levels, no hedging rule and the FIFO (first-in-first-out) rule which affects the way you trade. The FIFO rule states that the first trade you open must be the first one you close, and keeping track of your orders especially if you open many of them might be difficult for you.
The following are the factors you should consider:
Regulation is an important factor to consider when comparing, regulation is carried out by financial regulation authorities like FSA, NFA, CySEC and others. You should always open an choose a company that is regulated.
Deposit and Withdrawal
When it comes to depositing and withdrawing money from your account, you should consider the following:
What is the minimum deposit required?
How long does it take to withdraw money?
Is there any deposit or withdraw fee?
It is also crucial that you find out what payment or money transfer methods are available for use with for example Wire Transfer, Credit Card, Debit Card, Pay Pal and others that are suitable for you.
Minimum Deposit Requirements
How much money do you need to deposit so as to open an account? The minimum for most is $100 but for some its less. This is important to consider when comparing two or more.
The platform provided can be used for comparison and one can choose the best type of software. The most popular software is the MT4.
MetaTrader 4 is the best platform with powerful technical tools and charts that is why most if not all brokers offer the MT4. If you are a newbie choose one that offers you MetaTrader 4 that way if you decide to move to another one you will still find the MT4 platform that way you do not have to re-learn a new software every time you decide to try a new one.
Charting is very important and you need a powerful currency charting software with good charts and indicators so as to make the right decisions. The best choice is a one that offers good quality charting software such as the MT4.
Consider if execution, is instant, is it that of an STP. The best model is STP model, with high liquidity to guarantee order execution.
Leverage and margin
Should give you the option to choose leverage 1:50, 1:100 1:200 or 1:500 for the risk takers. However anything above 1:200 is too high 1:100 is the optimum leverage.
Should offer micro, mini and standard accounts for a trader to select the one which they want.
Should provide customer and technical support during the market hours, either via email, phone or online chat.
Before choosing a company to open an account with you might want to check the customer support and professionalism an compare this between different one.
Factors to Consider for Comparison
The fact is that genuine and regulated companies come with a guarantee of being genuine.
The company you choose should be suitable for all trader types whether it is scalping, day, swing or position trading. Most will not accept scalping; these are not recommended even for non-scalpers. Those that do not allow scalping might be because they do not have enough financial liquidity to guarantee execution of your orders. This is bad even for others traders because your orders might not be filled at the correct point and you might get re-quotes.
A good broker will be suitable for traders of all levels of expertise. Beginners should find the trading conditions to be quite flexible and the platform easy to use, while professional investors should benefit from high liquidity and instant execution of orders.
The factors below should be used when comparing, visit their website look at the information provided and use your judgement to make a choice if they are is best for you.
- MetaTrader 4 platform
- Up to 1:200 leverage
- Funding through WebMoney, Liberty Reserve, PayPal, Money Brokers, bank wire, credit card, debit card and other payment options
- Minimum deposit $100
- Bonuses on deposits
- In addition to currencies, other financial instruments such oil, gold and silver and stock indices
- Instant execution of orders, no requotes
- Professional customer support
- Well regulated by a financial authority
Recommended broker is one that will ensure you trade better by offering you the best tools and support for currency analysis.
Foreign exchange means the exchanging of one currency for another in the currency exchange market. With an average daily turnover of US $5.2 trillion, the currency market is the largest market in the world. With the aim to earn substantial profits, new investors are jumping into the Forex market everyday.
Investors, who take time to know the basic knowledge and information, definitely earn high returns on their investment than those who don’t.
However there are times, when investors fail to do anything right in the market because of lack of enough information and awareness regarding currency trading. Thus, it is recommended to select one before investing in the market. A good broker can improve an investors result by providing the best execution of transactions, there are many companies out there that one can select from but not all are good. The one thing to look out for is to choose one that is regulated.
While selecting, make sure that they are the best for you. It is not a tiresome task to find a foreign exchange company having a long list of customers. But it is not enough for you. You should look for a one that is regulated. Also look at their terms and conditions this will help you know about their workings.