Choosing a Trading Broker
With hundreds of online brokers to choose from traders might not know which broker to choose. A trader may not know which factors to look for when choosing their broker, this tutorial will explain to traders more about brokers & what factors traders should consider before deciding which broker to open a account with.
In there is no central market where trades are settled, instead trades are carried out in an Over The Counter market. Because there is no central exchange market place trades will be settled in the online interbank market. This online interbank market is composed of a network of big banks. For traders to gain access to this market they must trade through a broker. The broker will place trades in online inter-bank markets on behalf of the traders.
Traders cannot trade directly on the interbank market because they do not have the capital to setup the technology for doing this neither do they have the required minimum capital that is required by the big banks to allow them to trade directly in the currency market. For this reason retail brokers exist so as to connect retail investors to the online interbank market. Retail brokers will allow traders who do not have a lot of capital to trade in the market.
Brokers also provide leverage so as to help traders to open trades with borrowed funds. Because lots are traded in currency units of 100,000 or 10,000 and most retail investors cannot afford this, the brokers provide this leverage so that traders with little capital to invest can also be able to trade the market on borrowed fund. The borrowed funds are borrowed from the broker, a online broker providing leverage of 100:1 means that traders can borrow upto 100 times their capital, therefore a trader with only $1,000 can borrow up to 100 times which means $1,000 multiplied by 100 is $100,000, this $100,000 will be the capital that is available to the trader after using leverage & therefore the retail trader who only has $1,000 capital can now trade up to one standard lot of 100,000 units of currency.
Factors To Consider When Choosing Your Broker
The following factors should be used to figure out which broker you will choose to trade with.
Regulation - The first thing to consider is broker regulation license. You should only open an account with a online broker that is regulated. In the most reliable & most transparent brokers are the ones that are regulated. This is why this is the first thing that most traders will look for before they even begin considering whether to open an account with a particular broker or not.
Withdraw Policy - Try to find out the withdraw policy of a broker before opening an account with them. Best withdraw policy is one where you can withdraw your money any time you want without any questions asked. This policy should also provide that the withdraw should be instant if you are using a credit card to withdraw or should take 1 business day if you withdraw using bank wire method
Execution Policy - the best execution policy is a no requotes execution policy where orders are executed within one second or less. This means that as a trader you can open and close trades quickly & your trades should be requoted. A requote means that you'll have to place a trade again once the trade is requoted. A requote will happen if the execution of your broker isn't fast enough which means that the currency quote will change before you have completed putting your trade and therefore you have to make another trade.
Currency Pairs - traders should choose a broker that provides a wide range of currency pairs that they can choose to trade. In addition to currency pairs traders may choose to select broker that offer other financial instruments for trading such as commodities, CFDs, Futures, Metals such as silver & xauusd and indices.
Spreads - many brokers will quote the EURUSD spread at around 2 pips. When selecting a broker select the one that has about 2 pips spread for EURUSD.
Platform - select a online broker that uses MT4 software platform. Almost every broker uses this platform. As a trader make sure that the platform of the broker you select allows automated trading especially for those traders that trade with automated bots.
A trader might also use other factors to decide what broker to open an account with based on the preference. On this web site traders can also find a listing of the top 100 brokers on the broker ranking section of this web site & traders might use this list to find the broker of their choice.
