If you trade in the foreign exchange market, there are dozens of online forex brokers competing for your business. Visit any currency news site and you will likely be bombarded with an overwhelming amount of web ads from forex representatives. In this article, we discuss five factors to consider when choosing a broker.
1. Administrative consistency
The main thing to check when choosing a forex broker is its standing. In the US, a legitimate forex trader will be an individual from the Public Fates Affiliation (NFA), a self-governing prospect trading association.
It will also be registered with the Commodity Futures Trading Commission (CFTC), which oversees the US commodity futures and options markets. 2 A flashy website does not mean a broker is a member of the National Futures Association or regulated by the CFTC. The NFA member number is usually displayed in the “About Us” section of the broker’s website. In addition, every country except the United States has its own regulatory body. Due to potential concerns about transaction security and agent honesty, listings should only be opened with properly directed agents.
2. Account features
Each forex broker has different account options. The following are four areas to consider when comparing highlights between experts: influence and edge; distribution and commission; initial deposit requirements; and what’s more, the simplicity of trades and withdrawals.
- Leverage and Margin:
Forex participants may have access to leverage in their margin account depending on the broker. For example, a trader with an account size of $1,000 can hold a position of $50,000 using 50:1 leverage. Some brokers offer leverage rates as high as 200:1. With winning positions, leverage works in the trader’s favor because profits are more likely. Regardless, influence can quickly erase a dealer’s record, as the potential for misfortune also increases. Be careful with the lever.
- Spreads and commissions
A broker who takes commissions may charge a percentage of the spread, which is the difference between the bid and ask of a forex pair. Wider spreads indicate how much commission-free brokers make money instead. Find out how your merchant brings in cash and shop.
For example, the spread could be fixed at three pips – a pip is the smallest unit of price change in forex – or it could change based on market volatility. With a wider spread, it may be more difficult to achieve profitability. Spreads on popular trading pairs such as EUR/USD and GBP/USD will be smaller than on less frequently traded pairs.
- Intro shop
Most forex listings can be financed with a small start-up business, even for as little as $50. With influence, the purchasing power is obviously much more remarkable than the underlying trade, which is one explanation for how attractive the forex exchange is to new traders and financial backers. There are many brokers that offer standard, mini and micro accounts with different minimum deposits.
- Ease of Deposits and Withdrawals
Each forex broker has different account funding and withdrawal policies. Account holders may be able to fund their accounts online by credit card, ACH payment, PayPal, wire transfer, bank check, business or personal check, or wire transfer. The broker may charge a fee for both services.
3. Available Currency Pairs
Although there are many currencies that can be traded, only a few receive the most attention and as a result are traded with the most liquidity. The most important pairs are USD/JPY and USD/CHF, in addition to the aforementioned EUR/USD and GBP/USD.
4. Customer Service
Since Forex trading is 24/7, the broker’s customer service department should be available at all times. Also think about how easy it is to reach a live person on the phone. You can learn a lot about a broker’s customer service and average wait time by giving them a quick call.
5. Trading platform
The entry point of the investor to the markets is the trading platform. As a result, traders should review the broker’s software and platform to make sure it has the tools they need for technical and fundamental analysis and facilitates entry and exit of trades.
This last point is particularly significant: the highly planned phase of the shift will have clear trade buttons and some even an “alarm” button to close each individual open position.
Customization options, order entry types, auto trading options, strategy builders, backtesting features and trade alerts are other things to think about. Most brokers provide traders with free demo accounts to test the trading platform before opening an account and funding it.
Assuming you trust your forex specialist, you will actually want to devote more time and attention to investigating and creating forex methodologies. An investor’s chances of success in the competitive foreign exchange market can be improved by doing research before signing a contract with a broker.