As if there wasn’t already enough to learn about forex trading, the forex broker that you choose is probably the biggest trade you are going to make. You are basically surrendering all your trading capital to a company, expecting that you will trade with it and withdraw any profits when you need to.
Even if you have the best forex strategies, all your hard work will amount to nothing if your broker takes off with your money. Below are 5 tips on how to find a trusted forex broker for online trading.
1. Reliability of Trading Platform
The broker’s trading platform is your portal to the market. For this reason, it’s important to ensure that the trading platform is not only simple to use but also visually attractive. Also, it needs to have different fundamental analysis tools and features. In addition, it needs to be easy to enter as well as exit trades without requiring extra effort. A well-designed trading platform has simple “sell” and “buy” buttons. There are some that even have emergency button for the purposes of closing all the open positions.
There is potential for great loss when your forex trading interface is poorly-designed. It can lead to dear mistakes for instance accidentally adding a position instead of closing it. Another example of a costly error would be going short when your real intention was to go long.
These mistakes and discrepancies can not only make your trading emotionally draining but also uncomfortable. Make sure that the broker you choose has a reliable trading platform otherwise you will regret your decision.
2. The importance of regulation
Next, you have to check if the broker you are dealing with is regulated. Equally important is the country in which they are regulated.
Different countries regulate differently, and they tend to have varying regulatory requirements and environment with regards to financial registration. For this reason, it’s important that you select a foreign broker based in a country where activities are under strict monitoring from a regulatory agency. Also, you need to mind where the dealer is regulated- in off-shore or on-shore country, because the latter tends to be more liberal in terms of registration requirements.
Below are some of the countries that have regulatory agencies:
- USA
- Australia
- Eurozone
- UK
- Switzerland
- Japan
As a rule of thumb, you need to know the dealer’s or broker’s regulatory status. Even more importantly, you need to know clearly the body governing the forex activity where your dealer or broker does business.
3. Customer Service
FX trading often takes place 24/7, which means your broker’s customer support must always be available. You also need to be sure that you can easily speak with a live person, rather than a frustrating auto-attendant. In order to choose the best forex broker for successful online trading, you just need to make a quick call to the broker.
This will give you an idea regarding the kind of support they provide, wait times as well as the ability of their representative to answer your questions about different matters like spreads and regulations. During your call-in, you may also want to find out how long the broker has been in business and their exact trade volume size. As you may know only too well, larger brokers tend to have access to better prices and executions.
4. Fees and Commission Structures
Quite unlike as opposed to other exchange driven markets, the forex market has a unique feature which most market makers use to lure traders to trade. They can promise you no regulatory or exchange fees, no commissions and even no data fees. It’s important that you understand this advantage well, because when evaluating costs, it will depend a lot on your trading parameters like ratios, frequency and other stats related to performance.
Basically, forex traders use three commission structures which are as follows:
- Fixed spread
- Variable spread, and
- Commission charged depending on spread percentage
Spread, often computed in pips, refers to the difference between the buying and selling price.
So, which is the most appropriate choice?
It’s easy to think that the fixed spread option is the best for you, given that you know precisely what to expect. But you might also get a good deal when you pay variable but smaller spread.
Firstly, you need to remember that the best possible deal you can get is picking a reputable broker that has strong relationships with big foreign exchange banks and is well capitalized. This ensures that such a broker is a position to provide the liquidity you require to trade well.
Next, you need to factor in the impact of all possible fee structures that are on you trading model. This way, you will know the one that’s most favorable to you.
Some forex brokers won’t charge you a dime for commission, and the only way they make money is through the spread. The lower the amount of pips per trader the broker requires, the higher the hypothetical profit you can make. To know the different transaction costs one has to only compare pip spreads of a few brokers.
5. Does the broker offer any added-value services?
As any trader will tell you, easy access to economic data, news and real-time charts is a must. But you must think not only of these but also any other extra service as part of the package offered by the broker.
The issue of extra service is something that any trader needs to carefully consider to ensure that brokerage firm is complying with basic standards of offering real-time economic events, news and charts.
Conclusion
Before you start trading currencies, it’s important that you find a reliable forex broker. Remember you are going to put your money in this firm and you want to assured that when the time for withdrawal comes, it will be effortless. Luckily, we have discussed the most important things to consider before you arrive at this decision. Some of the things you need to consider include the reliability of the broker’s trading platform, whether the broker is regulated and by which body, customer support and commissions and fees among other things.
Video – Definition of a Trader
A trader is a person who trades, i.e., he or she buys and sells products or services. A forex trader, for example, buys and sells currencies, while cattle or stock traders purchase and sell cattle or shares respectively. This MBN (Market Business News) video explains briefly what a trader does.