Choosing a forex broker requires you to figure out what type of
investor you are and your goals in foreign Exchange.
Each broker that features Foreign Exchange investments has advantages and disadvantages. Some of the most important things to consider are regulation, the level of security provided by these companies, and transaction fees.
Security features vary from broker to broker. Some brokers have integrated security features like two-step authentication to keep accounts safe from hackers.
Many forex brokers are regulated. However, not all brokers are regulated and traders should beware of unregulated companies. In the US, Forex Brokers are regulated by the National Futures Association (NFA) and the Commodity Futures Trading Commission (CFTC), and France, Germany, Switzerland, Austria, Canada, UK and Indonesia also regulate brokers.
Forex brokers also differ in their trading platforms and have different account opening minimum deposits and transaction fees. Before deciding to sign up for any trading platform, you may want to make a budget for your investment.
Find out how much you want to invest in forex trading, how much you are willing to pay in commission and what your investment goals are. There are many factors you need to consider when choosing the right forex platform or broker. Think more deeply as you can before deciding to register an account with a forex broker.
Tips on Picking a Forex Broker
When looking for a reliable forex broker, take your time to make sure your money and trades are handled properly. All forex brokers in the United States are required to register with the National Futures Association (NFA), a self-regulating government agency designed to ensure transparency.
Please visit the NFA website to review broker compliance and look for complaints or disciplinary action that could affect your final decision.
Forex brokers are not immune to hacking therefore the safety of your funds and personal information is much more important than any other consideration when registering a Forex trading account. Even brokers can go bankrupt.
The Forex industry uses “introducing broker” and “white label” categories to market its services and build its businesses.
Introducing Broker means a smaller operation that refers customers to a large broker in exchange for a discount or other incentive. With a white label, small companies transform the trading platforms of large brokers and allow large companies to trade in the background. Both practices can increase operating costs and encourage these companies to widen bid-ask spreads and increase costs.
Before giving money to a broker, check their funding and withdrawal procedures. Some brokers require a long wait until you can trade when you deposit by check or wire transfer, while other brokers will charge large fees when you withdraw funds or close your account.
Closing a trading account can be stressful when the broker insists on filling out long forms, taking surveys, or talking to representatives who are trying to change your mind.
Account closures can take up to a week or longer to get your money back from a less-than-reputable operation. .
Customer service should provide assistance and trade access via chat, phone, and email. Look for 24/6 coverage, which means you can call customer service any time between Sunday afternoon and Friday afternoon. Before you decide to deposit funds into your account, test the speed with which the broker can answer your questions by chat and phone to see how long you have to wait for the account manager to answer.
Forex Trading Platforms
Currency pairs are priced through the interbank market, a communications system used by big banks and financial institutions but without a central exchange like NASDAQ or the New York Stock Exchange. Forex brokers take their cues from those transactions but aren’t required to offer clients the best interbank bid or ask and may intentionally display wider spreads with less favorable prices, adding to profits when they complete those trades through the system.
Prospective clients can check for conflicts of interest by reviewing trade execution procedures at the broker’s website. Specifically, find out if the broker has a dealing desk that makes a market, taking the other side of a client trade. A more reliable broker will post quotes directly from the interbank system through a wholesale liquidity provider or electronic communications network (ECN) that handles the actual buy and sell transactions. These are third-party firms with direct connections to the professional system.
Forex traders open and close positions through the broker’s trading software, which should include a mix of stand-alone, web-based, and mobile platforms. Metatrader has emerged as the industry standard for stand-alone software in recent years, providing a robust feature set that includes real-time quotes, price charts, news, research, and customizable watchlists. The MetaTrader platform was developed by MetaQuotes Software Corporation, based in Cyprus.
Web-based trading provides an alternative to stand-alone software but often has fewer features, requiring account holders to access other resources to complete their trading strategies. Mobile apps provide the greatest convenience but fewest bells and whistles in a slimmed-down design that usually allows one or two-click trading. It’s best to use the full-featured stand-alone software whenever possible, saving the mobile experience for those times you’re away from your trading desk.
Most forex brokers offer demo accounts that let prospective clients look at the stand-alone, web interface and mobile platforms, allowing them to trade forex pairs with play money. This software displays the same quotes, charts, and watchlists as the real system, so it’s an invaluable resource to examine the quality of the broker’s bid/ask pricing. Be suspicious if the broker doesn’t offer a demo account because it might be using an inferior or outdated platform.
Put several of these accounts side by side with real-time quotes from a large financial site and you’ll quickly find out which forex brokers are offering the best bid and ask prices under normal market conditions. If possible, take a second look just after a Federal Reserve rate decision or other market-moving events to see how the currency pairs move in highly volatile conditions.
Order Entry Types
The trade execution screen on the demo account offers a ton of useful information. Look for a variety of trade entry types and stop orders as well as safety provisions that may include Guaranteed Stop Losses and Close All orders. Many of these order routing methods are designed to protect the trader against excessive slippage, which denotes the difference between the expected and actual execution price.
The following order types should be the minimum requirement for any broker you choose:
- With market orders, the order will be filled immediately at the best available price. This can incur excessive slippage in fast-moving markets, executing cents or dollars away from the bid or ask price listed at the time of entry.
- Stop orders send a conditional buy or sell order that turns into a market order at the chosen entry price.
- Limit orders send a conditional buy or sell order that can only be filled at the entry price or better.
- Stop-limit orders send a conditional buy or sell order with two prices, stop and limit. The order turns into a limit order at the chosen stop price, filling only to the limit price. The order will cancel automatically if the quote passes through the limit price without getting filled
- Guaranteed stop losses send an order that’s guaranteed to be filled within the requested parameters as long as the quote passes through that price.
- Close alls send an order to close all open positions at the best available prices. This can incur excessive slippage in fast-moving market conditions.
Trading Education and Tools
Reputable brokers offer a variety of resources for clients to make smarter decisions and improve their trading skills. Look for an educational section on the website with diverse webinars and tutorials on the fundamentals of forex markets, popular currency pairs, and market forces that generate buying or selling pressure.
The educational section should also provide instruction on the broker’s trading platforms, currency pairs, and market order types. Look for videos, manuals, or other tutorials that show you how to build customized watchlists, set up technical charts, and display easy-to-read quote screens.
Extensive research and economic analysis tools should highlight currency pairs that might offer the best short-term profit opportunities. This section should offer free third-party commentary and insight from industry experts as well as real-time news and live webinars.
Social trading has gained enormous popularity in recent years and is now available at the most reputable brokers. Some social hubs have taken this concept one step further, offering a copy trading interface that lets you mimic the buy and sell decisions of other clients.
Summary
Take your time to do your research first when looking for a forex broker because bad decisions can be expensive. Top brokers offer strong resources, low trading fees and access to a global interbank system. They will also be careful with your money, even if you open a small account in hopes of making some money through your trading skills.
