The right forex broker will provide you with a seamless trading experience, where all you have to worry about is placing the right orders. The rest of the process should work like clockwork. On the other hand, if you trade with a mediocre, or even worse, fraudulent broker, your future as a trader is likely to be full of headaches and uncertainty.
Many traders find it extremely difficult to choose a broker. This is likely because there are simply so many to choose from! There are hundreds, if not thousands, of brokers currently operating in the marketplace. Therefore, the first challenge for any new trader is sifting through them and choosing one that is trustworthy and dependable. To help make this decision easier for you, let’s discuss the most important things to consider when choosing a forex broker.
CONTENTS
5. REGULATION
The forex market, just like other financial markets, is regulated in most countries. Before even considering anything else about the suitability of a broker, the most important thing to ensure is that it is registered with a reputable and independent regulatory body.
Different countries have their own regulatory bodies that enforce unique sets of rules. Their main focus is typically making sure that the brokers they are supervising are well capitalized and that their clients’ funds are protected. Furthermore, they ensure that brokers do not engage in unfair practices against their traders.
The map below shows some of the most well-known and respected regulatory bodies. Most keep a public record of any broker who does not comply with their regulatory rules, as well as any disciplinary action taken against their members. It is extremely important that the broker you register with complies fully with the regulatory body they are associated with.
4. TYPE OF BROKER
Forex brokers can be divided into two broad categories; dealing desk and no dealing desk.
A broker with a dealing desk takes the other side of their clients’ trades. At times, this aspect may raise the issue of a conflict of interest between the broker and their client. They give price quotes to their clients that closely follow the prevailing market prices but are not always exactly the same.
Dealing desk brokers are often called market makers. A market maker provides its clients with liquidity, as well as prices and is obligated to accept every trade a client executes. Market makers typically make their money through spreads in the quotes they give to clients.
No dealing desk brokers do not trade against their clients. Also known as Straight Through Processing (STP), these brokers pass their clients orders directly to interbank participants and typically either charge a commission for every trade taken or mark up the spread.
Electronic Communications Network (ECN) brokers also do not use dealing desks. Unlike market makers, they do not have an obligation to provide liquidity for their clients. ECNs bring together client orders and price quotes from liquidity providers into one market. True ECNs have variable spreads which tend to be very low. They are also able to show their clients the depth of the market. They charge a small commission for every trade taken.
3. COST OF TRADING
MINIMUM OPENING BALANCE
It is important to be well informed about the exact cost of trading with a specific broker. The most immediate cost is the minimum account opening balance. The brokers that are accessible to you will largely depend on the amount of money you are able to deposit into your account. Different brokers have different initial balances, with some requiring only $10 while others require a minimum of $100,000. Most market maker brokers require a deposit of between $100 and $300.
FEE STRUCTURE
When considering broker fees, you need to ask yourself whether you would rather pay commissions per trade or have wider spreads built into the quotes you get. Having to pay a commission may at times allow you to save on costs, especially when you are using decent ECN or STP brokers.
2. THE TRADING EXPERIENCE OFFERED
SPREAD AND LIQUIDITY
Low spreads minimize your trading costs and high liquidity ensures that you are able to get in and out of a position at the time and price you want. These two go to the heart of what a forex broker’s business is all about. A good broker must be able to consistently provide you with low spreads and high liquidity. As most traders learn eventually, not all brokers can do this.
There are no shortcuts here. After conducting real research and coming up with a few potential brokers, you will have to look further into the ones you shortlisted to test whether their services match up to your requirements. There are no amount of reviews or online material that can do this job for you. You will need to test out their services yourself.
PAIRS AVAILABLE
What pairs do you want to trade? Do you want to trade CFDs? While all brokers enable you to trade major currencies, CFDs and exotic currency pairs are not nearly as common. Make sure your broker offers a wide variety of instruments to ensure you are always able to diversify your trades. This can easily be done by testing a broker’s demo account.
1. CUSTOMER SUPPORT
A broker’s customer service center is the simplest, most effective way to contact your account manager or get assistance with your trades. As such, you need to make sure, before you open your account, that your broker has an effective team that is able to give you the assistance you need.
Does your broker have service representatives who can speak in your mother tongue? It is important that you are able to communicate clearly in a language that both you and the person you are speaking with understand well.
Being able to contact your broker in an emergency is also important. How many modes of communication are you able to contact customer support with? At what times are they available? At the very least, any decent broker should have email, phone and live chat options available during the days when markets are open. You should also consider whether you are comfortable with the quality of the support. Email response times, professionalism of the service reps and quality of support given are just a few things to look out for when inspecting a broker’s customer support team.
This is useful, what do you want to add on that is not included on the list?
Source By: Prime Pair
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