Choosing A Forex Broker

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The forex market is rapidly becoming one of the most popular trading markets today. Many non-professional individual traders are entering the market because they see the forex market as a new way to diversity their financial portfolio and also they see the real potential in the forex market for maximizing their returns on their investments in spite of the current economy.

Among so many forex brokers that exist in the market today, there are some good forex brokers out there as well as bad ones. Selecting the right forex broker is important as it can affect your trading experience greatly.

What to Look For When Choosing A Forex Broker?

The following is a list of things to look for when deciding which forex broker to go with:

Trading Costs:

When you enter a trade, you are subject to transaction fees. With the stock market, transaction fees are typically paid by commissions. In the forex market, transaction fees are paid by a spread. The spread is the difference between the bid price and the ask price of the currency pair you are trading.

It is good to know that the spread is charged only when you buy; you don’t have to pay the spread when you sell your currency pair.

The spread is your primary cost of trading in the forex market and so, you should pay attention to what brokers are charging. The spread can vary greatly from broker to another.

One thing to keep in mind is that the spreads can vary based on what currency pairs you are trading and what type of account you open. As a matter of fact, most brokers charge different spreads for different currency pairs, and the most popular currency pairs, such as the EUR/USD or GBP/USD, are often charged the lowest spreads.

The type of your account can also affect the spread. For example, if you open a mini account with the minimum deposit of $100, you will most likely be charged higher spreads than those with a full contract account.

Another thing to note is that the spreads are not “guaranteed”, unless it is specifically stated as “fixed spread”. This is because the spreads are the difference between the bid price and the ask price as determined by the market at any given time. As the market constantly changes, so does the spread. Typically, the spreads can widen during volatile active trading sessions.

Small differences in the spread can add up over a period of time, so pay attention to what brokers are offering. Look for a broker that offers “fixed spreads” so you can avoid unexpected surprises. If your trading strategy calls for frequent trading, as in the case with scalping strategy, you should look for the lowest possible spreads instead of fixed spreads.

Trading Platform:

All trading activities occur on a trading platform that your forex broker provides. Therefore, the trading platform must be stable, reliable, and user-friendly. Some brokers offer a variety of platforms to choose from to suit your needs and requirements.

The speed at which your order gets executed is very important. For example, if you click “BUY” for EUR/USD for 1.3123, a good trading platform executes your order almost instantaneously and you will be filled at 1.3123 or very close to it within micro pips. The fast execution becomes even more important during market upheavals. Even a few seconds of delay in the execution time can make a significant difference in the final price you are filled.

It is equally important that you have a fast Internet connection to ensure the quick execution time.

Payment: Deposit and Withdrawal

Good brokers should allow you to deposit and withdraw funds speedy, smooth and hassle-free. Make sure your broker offers acceptable methods to deposit and withdraw funds. Not every broker accepts credit cards or PayPal, and there will a fee incurred when the broker sends you money via a wire transfer. The wire transfer fees vary from bank to bank, but it could be as much as $45 per transaction.

Practice Demo Account:

The best way to learn forex trading is practice. Most forex brokers offer a free practice demo account preloaded with play money of as much as $50,000. If you new to the forex trading, it is essential that you have opportunities to practice and learn the basic trading skills before you start trading with your real money.

The practice account is not just for novice traders. Many experienced forex traders take advantage of the practice account to test out new strategies to see how they actually work. They also sign up with multiple brokers to compare the trading platforms to see which one works best and also to find out which broker offers better customer service.

Security:

A good forex broker should be a member of the regulatory authority. The purpose of regulatory agencies is to protect market users and the public from fraud, manipulation, and abusive practices in regards to the sale of commodity and financial futures and options.

Below is a list of regulatory bodies and its corresponding country:

United States: Commodity Futures Trading Commission (CFTC) and National Futures Association (NFA).
United Kingdom: Financial Services Authority (FSA).
Germany: Bundesanstalt für finanzdienstelstungssaufsicht (BaFIN).
France: Autorité des Marchés Financiers (AMF).
Australia: Australian Securities and Investment Commission (ASIC).
Switzerland: Swiss federal Banking Commission (SFBC).