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How to Choose Your Forex Broker ? Tips of Choosing Best Broker.

3 years ago
Forex Blog

The average traded value accounts more than $4 trillion daily today in the forex exchange market, making it the largest the financial market. Since there is no central marketplace for the forex market, traders must select the forex broker to help them conduct their trading activity. With so many large and growing numbers of broker, how can a "nerd" choose the one which fits his needs?

Chances are most new traders don't have an idea where to start and that's okay. "Choose Your Forex" is here to help with all.

"Choose your Forex" provides you the 5 basic tools which helps you in choosing the best forex broker in the market. But before that you should do your homework with the needs and requirement of broker you want to trade with.

A. Regulatory Compliance

The main objective of the Regulatory Compliance is to protect the users and brokers from the fraud, manipulation and to foster the open and wide, competitive and financially sound commodity and forex, futures, options markets. For example, in US, forex market is regulated by National Futures Association (NFA) and will be registered with US commodity Futures and Trading Commissions (CFTC). Likewise, there are lots of other regulatory body around the world which regulates the forex broker.

A professional looking websites doesn't guarantee that a broker is registered and is under the regulation. Any registered and regulated broker states its membership number on its website. Any regulation body develops the rules, regulation and services to maintain the integrity of brokers, traders and investors. Furthermore, due to potential concerns regarding safety deposits and integrity of the broker, accounts should be opened and maintained with only duly regulated brokers only.

B. Offered Currency Pairs

With the great deal of currency pairs available for trading in the market only few gets the attention of majors, and therefore trade with the great liquidity in the market. The major currency pairs are U.S. dollar/Japanese yen (USD/JPY), the Euro/U.S. dollar (EUR/USD), the U.S. dollar/Swiss franc (USD/CHF) and the British pound/U.S. dollar (GBP/USD). The important thing being a broker is not providing the huge selection of currency pairs rather providing the currency pairs in which brokers and investors highly interested and are highly liquid. For further information on major pairs see our blog.

C. Account Offerings

Each forex broker has different account offering which includes following:

1. Spreads and Commissions:

A broker makes money through commissions and spreads. A broker that uses commissions may charge a specified percentage of the spread, the difference between the bids and ask price of the forex pair. However, many brokers advertise that they charge no commissions, and instead make their money with wider spreads. For example, the spread could be a fixed spread of three pips (a pip is the minimum unit of price change in forex), or the spread could be variable depending on market volatility. A EUR /USD quote of 1.3953 - 1.3956 has a three-pip spread. That means that as soon as a market participant buys at 1.3956, the position has already lost three pips of value since it could only be sold immediately for 1.3953. The wider the spread, then, the more difficult it can be to make a profit. Popular trading pairs, such as the EUR/USD and GBP/USD will typically have tighter spreads than the more thinly-traded pairs.

2. Initial deposits:

Most Forex accounts can be funded with a very small initial deposit, even as low as $50. With leverage, of course, the buying power is much greater than the minimum deposit, which is one reason forex trading is attractive to new traders and investors. Many brokers offer standard, mini and micro accounts with varying initial deposit requirements.

3. Leverage and Margin:

Forex participants have access to a variety of leverage amounts depending on the broker, such as 50:1 or 200:1. Leverage is a loan extended to margin account holders by their brokers. For example, using 50:1 leverage, a trader with an account size of $1,000 can hold a position that is valued at $50,000. Leverage works in a trader's favor with winning positions since the potential for profits is greatly enhanced. Leverage can, however, quickly destroy a trader's account since the potential for losses is magnified as well. Leverage should be used with caution.

Forex Leverage

4. Ease of withdrawals and deposits:

Each forex broker has specific account withdrawal and funding policies. Brokers may allow account holders to fund accounts online with a credit card, via PayPal, or via Payoner, or with a wire transfer, bank check or business or personal check. Withdrawals can typically be made by check or by wire transfer. The broker may charge a fee for either service.

D. Open Demo account and ask a questions

Pick at least two brokers that fits most of your criteria and open up demo accounts. Trade in different market environments. Learn all the different features of each trading platform. If you have questions, don't be afraid to ask. Many brokers have excellent customer service support and would be happy to answer your questions.

Most demo trading platforms are very similar to their live counterparts, but not exactly the same. There may be a difference in speed of execution, slippage, and platform reliability (most of the time live accounts are more reliable than demo accounts). When you do have your strategy down and you are ready to move to a live account, start off small, test the waters, and see if this particular broker will suit your trading needs.

E. Customer Service

Forex markets operates 24 hours a day so do forex trading. So a broker's customer support should be reliable fast and responsive any time. Another consideration is the ease with which the investor can talk to the live person rather than time consuming, often frustrating, auto attendant. Further considering the broker, a quick call can give you an idea of type of customer service they provide and representative's ability to concisely answer questions regarding margins, leverage, regulations and company details. These things helps you finding out how long the broker is in operation and the trade volume size. (Larger brokers generally have better access to price and execution.)

Customer Support

F. Trading Platform

The trading platform is the investor's portal to the forex markets. As, traders should make sure the platform is easy to use, visually appealing and has variety of technical and/or fundamental analysis tools. A well-designed platform will have clear 'BUY' and 'SELL' buttons, which is more important, and some have "panic" buttons that closes all the position which you don't want to (either open to close positions). A poorly designed interface, on the other hand, could be costlier, such as accidentally adding ta a position rather than closing it, or going short when you meant to go long. Other consideration include order entry types, automated trading options, strategy builder, customization options and trading alert.

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  • Surya Kandel

    Nice article. I am waiting for more brokers to choose the right one.

    2 years ago . Reply

    • Choose Your Forex Ltd

      Thanks for your comment! Hope you can compare and choose your right broker soon.

      2 years ago . Reply


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