Looking For An Online Forex Broker – Checklist
Looking for an an online forex broker? This forex broker checklist gives you things to think about when choosing which account to open. You should look into the following as a bare minimum requirement and always do your own due diligence. These are listed in no particular order.
Low spreads. An important metric which gives an indication of how much transactional costs will hit your bottom line is the bid – ask spread. Very tight spreads will save the trader money whereas wider spreads indicate additional costs. The spread on a forex currency pair is calculated as a value which is referred to as a “pip”. The spread is the difference between the bid and ask for the currency in question. Most online forex brokers make their money in this way. The takeaway from this is that low spreads are what we want to find as the cost of trading is minimised. Try to find out if the spreads are much wider during event risk or weekends. This is to be expected to a certain extent but you should gain an understanding of how wide they can become.
Reputable forex broker. You should check that the broker is registered with the relevant authorities. This is dependant on the country they are registered in but examples include the Commodity Futures Trading Commission (CFTC) in the US and the Financial Services Authority (FSA) in the UK.
What trading tools does the forex broker offer? Real-time charting, market analysis tools, news, automated trading functionality (expert advisors etc). Make sure you get the tools that you need to trade. Demo trading often gives the client a chance to test this area but some tools are reserved for live clients only. Some brokers offer 3rd party market analysis from banking institutions, others provide in house analysis.
Different kinds of trading accounts. Are you looking for a mini forex account with the granularity on position sizing it offers? Not sure? Calculate you typical position size and potential stop loss size and make sure the account you choose allows the granularity in position size you need.
Leverage offered. Do you need 50:1 leverage or are you looking for 200:1? Traders can control a large amount of money when using a leveraged forex account. Leverage is an area that you should look into as it is has potentially positive and negative elements. Higher leverage equals bigger potential gains and losses. You should find out what leverage is offered by the brokers you are considering.
Margin requirements. Find out what the brokers margin call policy is, especially if you will not have much of a buffer available and intend on trading multiple positions which could utilise most of your funds.
How will you be funding the account? Are you looking for an account denominated in dollars or sterling for example? Maybe you want to fund in euros or yen. Check with the broker beforehand. Do they charge for withdrawals and is their a minimum or maximum level?
Forex social network service. Does the broker host a social network on their site? This may or may not be important to you but try to establish this beforehand. Some brokers may reserve this and other feature for clients only.
Copy trading functionality/mirror trading. One area which is gaining popularity is copy trading as traders seek to learn and benefit from other traders. Zulutrade offer this kind of functionality and can integrate with various brokers. See our Zulutrade review for an overview of their service. Other brokers may have a proprietary offering in this area.
Customer support. This is something you may want to test beforehand. Give the forex broker support desk a ring if you want and ask any questions you have if this is important to you. Maybe send an email to support if this is your preferred method of contact. Find out what the open in hours are for support.
As mentioned above, this is not intended on being a comprehensive guide to choosing a forex broker. However, hopefully it has given you a few areas to consider. You should think very carefully about what matters to you and ask any question before signing up for a forex broker account.