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Choosing A Forex Broker

Choosing A Forex Broker

Tips to help with selection of a forex broker.


One of the most difficult choices you will encounter while starting out as a forex trader is which forex broker to sign up with.

The following list gives some ideas regarding generic factors which are worthy of consideration when choosing a forex broker.

Find a credible Forex broker

Would you trust a bank from some place you have never heard of?  A forex account is no different as you will be depositing your hard earned cash and trusting the organization to keep it safe.  Does the broker have an established brand name?  Is it well established over many years?  These are the kind of things I look for when choosing a forex broker.

Regulation and Security.

This is one of the most important factors as you will be trusting the broker with your funds. It is important to do your due diligence and check the forex broker you choose is regulated with the applicable authorities. Here are some examples of regulatory organizations.

– CFTC (Commodity Futures Trading Commission, US).

– NFA (National Futures Association, US).

– FSA (Financial Services Authority, UK).

– SFBC (Swiss Federal Banking Commission, Switzerland)

– ASIC (Australian Securities and Investment Commission)

– AMF (Autorité des Marchés Financiers, France)

 Cost of doing business – the spread.

Each time you enter a trade the broker makes money from the difference between the bid and the ask price – this is known as the spread. You should be able to get very competitive spreads these days with currency pairs like EUR/USD available from 1 pip and above.

Look into how these spreads are changed during economic data releases and different times of the day. This is all dependent on how and when you trade and how the fluctuations, if any, in transaction cost fit in with your trading strategy.

Spread betting brokers often close a position at the pre-defined end of day and open a new one.  This is a business expense that can affect the bottom line but may be worthwhile if you are a Uk resident and subject to favourable tax laws for spread betting.  Some traders may have more than one account and only spread bet with intra-day trades.

Trade execution.

Trading demands a great deal of patience.  There is nothing more frustrating than waiting all day for a trading signal only to be told that the price you wanted to enter at is “no longer available”.  Realistically, this is to be expected on occasion but not as a regular occurrence.  Some brokers will let you specify how much slippage is acceptable which is a step in the right direction but ideally fast execution should get you the price you want.   

Margin and deposit requirements.

One of the main attractions of the forex market is that traders can open trades which are larger than the capital in their account through trading on margin. This can be a positive and a negative depending on how this leverage is utilized.  However, each broker has their own requirements regarding a minimum deposit size. 

Make sure the leverage is in-line with your expectations.  If using a spread betting broker ensure you are happy with the minimum price per pip for your expected stop losses.  You should already understand how big your stop losses will need to be through your paper/demo trading and back testing.

Charting and data packages.

Most forex brokers have charting software built into the online dealing platform. Some offer mobile trading via the iPhone and other devices. You do not have to utilise the forex brokers charting package but make sure whatever you end up with is fit for purpose if you don’t have an alternative method of charting available. Does the trading platform offer a free news feed? Basically you need to be happy that the trading platform gives you with all the information you will need to trade properly.

Platform functionality.

Do you need trailing or guaranteed stop loss functionality?  “One closes other” order types?  Is it essential that you have a meta trader platform so you can run your expert adviser?  Call or email the broker help desk and ask any pertinent questions.

Customer Support.

Some brokers offer support via the phone while others will only be contactable online. Decide on how you intend on interacting with your broker and make sure the service you require is available.  Are you happy to deal with your broker via email only?  Call the help desk and test the service if there is a phone support number.  If nobody picks up the phone, in a timely manner, you may see this as unacceptable and move on to the next broker.

Do your due diligence.

Ultimately selecting a company to trade through is one of the most important areas of consideration when looking into how you intend to trade forex. You should always do your due diligence beforehand. Only consider signing up with a broker when you are satisfied it is suitable for your requirements.

 

3 Responses to Choosing A Forex Broker

  1. rebecca says:

    I will use this forex broker checklist soon because my broker is less than ideal.  Which forex broker do you recommend?

  2. forex analysis says:

    chosing the right forex broker is one of the most important aspect in forex trading

  3. Best Forex Brokers says:

    Hi, This article has been really great and informative about choosing a Forex broker
    thank you for your well written article

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