Choosing forex broker can take several weeks, since there is a variety of brokers to choose from these days and there are plenty of factors to consider and compare. What are the features and services that a trader should pay attention to?
While comparing and reviewing forex brokers, it is advisable to go over the following checklist:
1. No Dealing Desk Broker
NO DEALING DESK BROKERS No dealing desk (NDD) execution means brokers match orders directly with external liquidity providers, thus eliminating the need for intermediaries (dealing desk). This is done using execution methods such as straight through processing (STP), electronic communication network (ECN), direct market access (DMA) or hybrid combinations of STP, ECN and DMA.
No dealing desk brokers offer the tightest spreads as they pass on bid-ask prices from liquidity providers with no markups and instead charge a flat-rate commission fee. While dealing desk brokers are compensated through wider spreads, NDD brokers profit from the commission fees they charge. NDD execution is suited to day traders, scalper, algorithmic traders (traders that use automation).
Regulation is key when choosing your broker. You want to make sure they are respected and secure. This means double-checking their registration with the related regulatory body and making sure they are allowed to operate in your country. It also means checking your own local regulations to make sure they are permitted.
You have better chance of survival by opening an account with a regulated broker which is under supervision of the appropriate authorities, such as:
· NFA, CFTC ( in USA)
· CIPF, OSC (in Canada)
· FSA (in UK, Sweden, Denmark, Japan)
· SFDF. ARIF, FINMA (in Switzerland)
· CNMV (in Spain)
· SFC (in Hong Kong)
· ASIC (in Australia)
· DMCC, DGCX, DFSA, ESCA (in Dubai)
· FFAJ (in Japan)
The above list doesn’t contain all of the regulatory bodies, so if you spot an “unidentified” abbreviation on a broker’s website, google it to check which country is responsible for keeping the broker on its best behavior!
3. Deposit and Withdrawal
When it comes to depositing and taking money out from your trading account, it is not only crucial to know which payment methods are available, but also how broker handles the withdrawal:
· Is there minimum payout requirement?
· Can you withdraw anytime or the withdrawals are processed once a month?
· How long does it take to get your money?
· In case you used the free bonus, what are the withdrawal conditions?
· Is there a withdrawal fee?
Each broker offers different set of payment methods, some of which are:
· Credit/Debit Card
· Wire Transfer
Cyberspace is full of potential crime scenes involving scam and fraud. It is important to find a broker that can withhold hacking attacks, fishing attempts and deal with fraud issues.
Above all, a trader himself should be responsible for his/her personal details. Avoid opening emails that contain a suspicious offers and clickable links.
For example, consider an email that offers a special bonus and a link which will supposedly take me to the broker site. In case of receiving such offer, make sure to go to the broker via the secure link that you have in your favorites or get in touch with the broker via email previously used to communicate with support. You can then ask the support whether the email offer is genuine or a fraud.
The basic rules to keep your identity safe are:
· Keep in mind that only your name, date of birth and address are enough for an internet criminal to take over your identity.
· Use privacy settings on social networking sites to block anyone you don’t know.
· Never access websites via links in emails.
· Create smart passwords with a combination of letters, numbers and symbols.
· Forex broker will never ask you for personal information such as passwords or security details of your trading account via email.
A secure trading environment with a trusted broker is an integral starting point to a positive forex trading experience. Here you should be looking to the top-tier bodies in the regulatory world when making your choice.
This means your broker should be regulated by the likes of ESMA and CySEC within the EU, the FCA within the UK, ASIC in Australia, the SEC in the United States, or another established regulator around the world.
Nowadays, almost all brokers use segregated accounts at top-tier banks as mandated by the regulator. This is something to confirm though, as is the reputation of any banks they use for these kinds of services.
5. Free Demo Account
As a newbie in forex, you might want to practice those brilliant ideas before entering the real market. Most brokers offer free practice account, but in most cases for limited amount of time (on average, a month).
Check out whether trading conditions in demo account are similar to the real money account. You don’t want to trade an illusion and then have your heart broken the moment you step into a real world.
6. Minimum Deposit Requirements
How much money do you need to deposit in order to open an account? The values vary from $1 to $2,000 and it is up to you to make a decision.
Small minimum deposit requirement are great for mini accounts – the next best thing after practicing with demo. There are brokers that even offer cent trading. You can definitely improve your trading skills and at the same time lose the minimum! (Yes, in the beginning, be prepared to be a loser! There is nothing much you can do about it, but to gain experience).
In any case, you will have to build on your current restrictions – financial and technical. For example, if you cannot afford to risk a deposit of $500, then it is obvious that you will have to narrow the circle of Forex brokers to those whose minimum deposit suits you (for example, $10).
7. Trading Platforms and Account Types
With a wide variety of brokers come extensive options in Trading Platforms. One of the favorite among traders is MetaTrader 4, offered by many brokers. This is a download platform with powerful trading tools and charts.
MetaTrader 4 is not the only platform, though. There are plenty of download and web-based software you might find more user-friendly and suitable for your trading needs.
Brokers will often offer many account types. You can and should browse these before opening to make sure they have an ideal account type for you. This could be one with raw spreads from 0 pips, a low-risk cent or nano account, or even accounts that let you trade real stocks and ETFs.
Classic (or standard) account.
It is the most common type of account. It features a minimum lot of 0.01 and a fixed spread, which makes it easy to calculate price targets. It is optimal for intraday trading and trading on daily charts, but scalpers do not choose such accounts, because when trading in an active market there is a slight delay in the execution of orders.
The point is that in this type of accounts all payments are made not in dollars, but cents. That is, a deposit of $20 will be displayed on the account as 2000¢. Technically, a cent account in its features is no different from the classical one, you simply make bids, not in dollars, but cents. Why would you do this? Just to try your hand with real money on a real interbank bank without risking large amounts of money. Professionals also use cent accounts to evaluate their strategies.
For a beginner, the availability of such accounts with a Forex broker is a mandatory criterion. Because, before entering the interbank market, you need to understand the basic mechanisms of the terminal’s operation – both technical and strategic. Demo accounts are identical to real ones in everything, they even have real quotes. But you are trading virtual money, that is, you are not risking anything. This is the best option for training.4
Almost all Forex brokers have such accounts, but they are not for beginners, because here you need to have some experience and a good understanding of the nuances of the foreign exchange market. Such accounts are characterized by an unfixed, but lower spread, as well as transaction fees. Execution of orders is faster than in the classic ones, but there are slippages in the active market. This is an option for scalpers.5
As the name implies, these accounts do not have swaps, in other words, commissions for transferring the transaction to the next day. Unlike ECN accounts designed for short-term transactions, swap-free accounts are suitable for traders whose positions are open for several weeks.
8. Trading Conditions and Spreads
Basically, you want to find a broker with:
· Low Spread
That’s the difference between the sell quote and the buy quote, aka bid and ask price.
· Sufficient Leverage
1:200 sounds about right. Don’t go overboard with 1:500 or more, because high leverage increases both the potential profit and potential loss!
· Several Account Types
There is probably Mini and Standard accounts with different features and services available. Make sure to check each account option inside out!
It goes without saying you will always want the best value, lowest fee environment you can find without compromising on other features. You will typically find the lowest spreads and some of the fastest execution speeds with an ECN broker where spreads usually start from 0 pips.
Also, you will want to keep an eye on any non-trading fees like deposit and withdrawal fees based, inactivity fees, and the number of base currencies available so you can do your best to avoid any conversion charges.
9. Customer Support
You want a broker that provides customer and technical support during the market hours, aka 24/5, via email, phone and preferably online chat. You might have a question about order execution, a closed order or even a malfunction of the trading platform.
Before trading with a broker you might want to check the broker’s customer support ability and professionalism by getting in touch with them via available methods and asking questions. You can even write down their answers and check the correctness later on. Plus, you can experience the attitude of the representative and the willingness to solve the problem.
10. Charting Software and Educational Material
Last, but not least, a good charting service. Even some of the top-notch brokers do not provide good charting software.
When trading forex it can be easy to get caught up with all the latest strategies and trading methods. It can be enticing to drop your existing strategy and try something new and improved. But the best advice we can give you is to research and learn just one strategy that is known to show results. There are countless strategies that return a profit, the key is to learn one and stick to it. Too often, beginner traders switch their trading strategy because they have some losses. There is no strategy that produces only profits, you will lose some and win some, so keeping a consistent strategy can result in the latter.
Charting is very important and you need the whole nine yards of indicators in order to make the right trading decisions and make money.
There is of course an option of using third party charts, but it is highly disapproved, due to inconvenience and most probably a fee. Therefore, your best options is to find a forex broker tht offers good quality charting right from the start.
When trading forex, as an investor you must be aware of the potential risks involved. If you are not cautious or knowledgeable of potential outcomes, you could end up suffering losses too big to come back from. That being said, it’s important to never invest more than you can afford to lose. This is risk management. By doing just this, you can more effectively trade, as the fear of losing everything is out of the equation.
The choice of a forex broker in 2023 should be based on the main criteria below:
- extensive experience in the foreign exchange market;
- mandatory availability of a license regulating its activities;
- a large selection of accounts, allowing the trader to choose a suitable option, depending on financial capabilities;
- providing customers with the software necessary for successful trading;
- providing safe and fast money depositing and withdrawal;
- allowing traders to make transactions with a minimum deposit;
- issuance of loans for transactions;
- competitive spread size;
- providing comprehensive support to clients and the ability to resolve conflicts and disputes;
- a large selection of tradable currency pairs.