As is the case when the subject is investing in stocks, the choice of the correct forex trading broker is crucial to having success in the retail forex trading market. In fact, one could argue that in forex trading, the choice of broker is of even more exaggerated importance than in stock trading because of the easily-accessible leverage which comes part and parcel with the opening of a mini or micro forex trading account and the potential damage that can be caused by dabbling in leveraged forex trading: the potential for losses far outweighs the losses that the average retail penny stock trader can incur when trading on margin. This is true because although a penny stock investor may have access to the ability to trade on margin, he has no obligation to do so; many forex brokers, in contrast, require that their retail clients avail themselves of the offered leverage so that they can purchase the minimum lot size required by the broker to begin trading. Thus, the stakes in forex trading are simply higher, and so the retail forex trader should be equally highly discriminating in their choice of forex trading broker.
Because the priority and ranking of the parameters to be considered in choosing a trading broker can vary wildly between retail forex investors, we can’t recommend which forex broker may be best suited to your needs. We can, however, provide you with a list of the common factors which are critical to the choice of broker, and caution you to consider all of these items carefully as you sift through the multiple online broker offers in search of your optimal match. Here are the broker characteristics you’ll need to consider
• Demo Account: any trading broker worthy of receiving your deposited funds must, at the very least, offer you the opportunity to trade in a demo account with virtual funds prior to staking your account with real money. Trading in a demo account not only provides you with the opportunity to sharpen your forex skills, but also serves as your introduction to the trading firm and its platform. It’s important to work with a platform with which you’re comfortable and at ease, and while the demo account won’t have all the bells and whistles of a cash-funded trading account, it’ll give you a good feel for the forex trader’s general set-up. Certainly, if you find using the demo account to be awkward or otherwise cumbersome, you should think twice before moving forward with the forex trader or providing them with your hard-earned funds.
• Broker’s Account Requirements: have a clear picture of what the forex trading broker’s account terms and conditions require of you. Determine the level of any minimum initial deposit which may be required, and determine the amount of available leverage attached to the account, as well as the minimum lot size, so that you can calculate your downside—that is, the risk of how much capital you stand to lose—more exactly. Read the broker’s terms and conditions thoroughly to understand whether their profit comes from the spread on the currency prices they pass along to you, or whether they charge a commission for each currency trade; if the former, decide whether you can live with an admitted lack of price transparency, but if the latter, be certain that you are aware of the amount of pips in commission that you will be charged. As a rule of thumb, you’re probably best off not doing business with a trading broker who charges more than a one or two pip commission for executing trades in a very liquid currency pair such as USD/Euro.
• Your Account Requirements: begin with the basics. Are you a forex trading novice, or do you already have some experience under your belt? If you’re new to forex trading, you might benefit from opening your account with a forex Market Maker, despite the fact that Market Makers generally rely on manipulating the spread in any given currency pair before passing their price along to the retail forex investor as the basis of their profits. Market Makers typically offer the type of services that beginning forex traders find helpful and attractive, such as webinars, online learning tools, practice accounts and access to analytical tools. If, however, you’re an experienced retail forex investor and simply seek access to the forex markets, you’ll likely be better off opening your account with an ECN broker, whose prices are more transparent but who typically requires a higher minimum account balance to begin. Whichever way you lean, do not commit yourself to any particular broker until and unless you fully understand their methodologies for transferring funds into, and profits out of, the account, and further, until you completely grasp the fees that may be associated with the funding, transferring or withdrawing of money. Do they accept credit cards, either as a funding source or as a destination for profit payouts? What about PayPal, check or wire transfer? What is the trading broker’s policy on scalping and hedging, or on the usage of such additional more sophisticated mechanisms such as trailing stops? Remember: your requirements are equally important as the broker’s.
• Platform/Software/Interface: whatever you call it, you’re dependant on it to communicate your orders and your wishes to your broker. Again, keep it simple: do you understand how the trading broker’s platform works? Can you navigate your way through it smoothly when placing your orders, your stops and your take profit points? Does it respond to you in real time with no noticeable lags? Think about online security: is your confidential information secure and protected from third-party snooping? Consider, too, the account interface: is it user-friendly and manageable? What other types of software and online support does the trading broker offer in addition to simple account access? Do they provide corresponding access to charting software, and/or supporting tools and indicators?
• Customer Support (particularly for beginners): A support team that’s only available from 9:00am to 5:00pm US east coast time won’t be of much help to you if you live in New Zealand, and vice-versa. Look for a trading brokerage that offers 24/7 support, whether via live online chat, telephone or e-mail. Customer support is particularly important in forex trading, since by definition the forex markets never close. Look for friendly, competent service that’s responsive to your needs and that handles your concerns in a professional and timely manner.
• Regulation: with so many online providers of forex trading services vying for your business, be certain that the one you’ve picked is regulated to some degree in his home country. Whether the CFTC in the US, the FSA in the UK, FINMA in Switzerland or Australia’s ASIC, there’s no reason to entrust your funds to any of the many brokerage houses who choose to not submit themselves to the purview of a regulatory authority.
In order to make the most appropriate choice of broker, you need to be able to identify what it is that separates a good forex trading broker from a mediocre one. You’re looking for transparency, for good support, and for a reputation that has withstood the tests of time, thus, the length of time that a broker has been in business should be of interest to you, because it speaks to stability and reputability. You’re looking for a framework and a palette of products that suit your needs, thus, the more reputable products the brokerage offers their clients, whether options, futures, or commodities, the greater the chances that the brokerage has both a certain gravitas and a large client base. Taken together, these are indicators that the trading broker has the ability to stick around for the long-term. This may be the most important indicator of all, since unlike banks or stock brokerage firms, there’s no insurance protection for the account holder to recoup their losses in the unlikely event that the trading brokerage goes under.
Keeping these factors in mind should go far in helping you to discern which forex broker is best for you. Know what you’re looking for and, equally importantly, know how to look for it, and you’ll know how to find the best forex trading broker for your needs.
For further information on the topic or any other questions, please do not hesitate to contact us.