How to Choose a Forex Broker?
You need to open account in forex broker to be able to trade forex. Unfortunately, there are hundreds forex brokers out there. With so many choices, it will be difficult to find forex broker. This article provide you with guides, so you can narrow your choices down and finally you can pick the best forex broker that suits your trading needs
Before choosing any broker, take a look at the 12 critical factors to consider:
1. PROPER REGULATION
A good broker must have is a high level of security. After all, you are going to hand over your money to. So you must make sure the broker is legit. Fortunately, checking the credibility of a forex broker isn’t very hard. Check to see if your broker of choice is registered to these regulatory bodies:
|United States||National Futures Association (NFA) and Commodity Futures Trading Commission (CFTC)|
|United Kingdom||Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA)|
|Australia||Australian Securities and Investment Commission (ASIC)|
|Switzerland||Swiss Federal Banking Commission (SFBC)|
|Germany||Bundesanstalt für Finanzdienstleistungsaufsicht (BaFIN)|
|France||Autorité des Marchés Financiers (AMF)|
|Canada||Autorité des Marchés Financiers (AMF)|
|Japan||Financial Services Authority (FSA)|
Make sure that your chosen forex broker is a member of the regulatory bodies mentioned above.
2. TYPE OF BROKER
It is critical to find a forex broker with good trade execution practices. There are essentially two types of brokers: Dealing Desk (DD, also known as market makers) and Non-Dealing Desk (NDD, ones who pass your orders into the interbank market). It is recommended that you choose a Non-Dealing Desk broker.
3. MINIMUM DEPOSIT
If you’re new to forex trading and or just trying out a new broker, you may not want to deposit a substantial amount to your trading account at first. Some brokers offer very low minimum deposits to open a real trading account. For example, in some forex broker you can open real account with just below $100. Usually, a reputable and proper regulated broker require higher deposit amount
4. TRANSACTION COST
Forex trading you will always be subject to transaction costs. Every single time you enter a trade, you will have to pay for either the forex spread or a commission. So, look for the most affordable and cheapest transaction cost. Non-Dealing Desk broker usually use spread for transaction cost. But reliable and secure broker usually has higher spread. It’s all about finding the correct balance between security and low transaction costs.
5. LOT SIZE
Choose forex broker that allow you to trade with minimum trade size. For example when open a standard account, you should be able to open 0.01 lot. Minimum lot size is useful when you want to apply money management in trading.
6. DEPOSIT AND WITHDRAWAL
Good forex brokers will allow you to deposit funds and withdraw your profits hassle-free. Choose forex broker with deposit and wihdrawal method that suits your need. A forex broker may have various deposit and withrawal methods, depends on their regulation. Almost all brokers will accept deposit via wire transfer. US regulated brokers not accepting deposit via credit card, but this is a common practice amongst Europe based brokers. Certain Europe based brokers will also accept payment via online payment services like Paypal, Skrill, Neteller, Webmoney, etc
Leverage ranging from 1:50 to 1:1000. Higher leverage enable trader to make more profit with less amount of capital, but also can lead to large losses as well as profits. Proper regulated forex broker usually gives smaller leverage, to protect their clients from big losses. In some broker, you can set your own leverage level.
8. SWAP FEE
Some brokers do deduct interest from overnight trading position. This information is important to traders with longer time frame, who hold positions overnight.
9. TRADING STYLE
Your trading style can factor greatly into which forex broker is best suited for you. Some forex brokers doesn't allow scalping and robot trading.
10. TRADING PLATFORM
Most trading activity happens through the brokers’ trading platform. Choose trading platform that is user-friendly and stable. It is recommended that your broker support MetaTrader, popular forex trading platform. MetaTrader is widely used by forex trader, so there are a lot of resources about MetaTrader. You can find a lot of tutorials, free indicators, free trading robots (Expert Advisor) and add to MetaTrader.
11. TRADING INSRUMENT COVERAGE
Nowadays, you can trade more than just currencies with your forex broker. Some brokers provide trading on commodities (wheat, corn, etc), precious metals (gold, silver),oil, stock indicies, invidual stocks from various countries. If you’re looking to trade more than just forex, look at the brokers trading instrument coverage.
12. CUSTOMER SERVICE
You must pick a broker that you could easily contact when problems arise. Brokers may be kind and helpful during the account opening process, but have terrible “after sales” support. Good customer service is especially important for novice traders. Most brokers will offer 24/5 multi-lingual phone support and live chat.
The next step is comparing brokers using these 12 critical factors. Finally you can pick the best forex broker that suits your trading needs