Forex brokers are firms that allow retail forex traders to participate in the spot forex market. They serve as intermediaries between the trader and the interbank market, offering accounts and leverage. Forex brokers are in charge of executing your orders, accepting your deposits as well as processing your withdrawals.
Therefore, it is important to choose one’s forex broker wisely. The following properties are what to look for in a forex broker:
- Deposit and Withdrawal Options
- Trading Platforms
- Customer Support
Regulatory authorities are agencies backed by the government of different nations responsible for verifying the authenticity of forex brokers. They also hold them liable for their actions and reprimand/sanction them if they are found to act inappropriately. Before approval can be granted to a forex broker by a regulatory body, they must hold a certain amount that differs by the authority.
The bottom line is that regulation helps to differentiate credible brokers from those of questionable character. Thus it is safer to trade with only regulated brokers. Regulation itself also exists in tiers, with some having higher standards than others. Examples of the most reputable forex regulators are given below.
A forex broker to be trusted is one that is regulated by reputable government authorities such as Cyprus Security and Exchange Commission (CySEC), Financial Conduct Authority (FCA), Commodity Futures Trading Commission (CFTC), Australian Securities and Investment Commission (ASIC) among others.
Deposit and Withdrawal Options
A good broker must support a variety of payment processing options to ease the customer. These should be reliable methods and easy to use. The payment and withdrawal options available to you may vary depending on your location. Be sure to check if the broker supports easy payment processing options before depositing with them.
Examples of payment often offered by brokers are wire transfers, credit cards, debit cards, Skrill, Neteller, Perfect Money, and other eWallets.
This refers to the trading user interfaces offered by the broker for trading. The trading platform is the bridge between the retail trader and the broker. Analysis and order placement are generally common to all platforms. Other features of trading platforms include news, signals, and automated trading. Trading can today be done on a variety of platforms, and examples are web-based, desktop, and mobile.
Regardless of the device or platform, the important properties to look for in trading platforms are be cleanness, simplicity, and a user-friendly interface. Other properties include speed, charting, and analysis tools.
Different brokers offer their proprietary trading platforms, but there exist other platforms offered by multiple brokers. Examples of the most popular retail trading platforms are MetaTrader 4 (MT4), MetaTrader 5 (MT5), Ninja Trader, and cTrader.
The brokerage services rendered by brokers to traders are not free. Although some may try to convince you of the contrary. Each and every broker charges fees for the services rendered either in the form of spread or commission. Trading fees are an integral and crucial part of trading such that it can impact profitability. This is especially for scalpers and day traders who can open multiple positions in a single day.
Some brokers are better than others in that while they also charge for their services, they charge lower. This can be in the form of tighter spreads than their competitors or lower commissions. Also, a lot of brokers offer multiple account types with different fee structures – more on this in a bit.
Be sure to understand the fees associated with trading with a broker before opening an account with them.
Execution refers to how the broker handles the orders you send to them. With respect to this, there are three main types of brokers – ECN brokers, STP brokers, and market makers. You can read more about the types of brokers here.
The type of brokerage model run by the broker influences the speed of execution (how fasts your orders and requests are filled). This has an impact on the frequency of slippages and requotes.
A good broker has lightning-fast execution with little or no slippage and requotes. Lack of speedy execution can result in poor trading especially for scalpers.
Finally, a good broker must have a friendly, easy to access, and responsive customer service. This is important for the resolution of disputes and addressing any questions customers might have.
Different issues can arise when trading and you can need to have access to help in the form of customer support.
The customer support can also indicate how legitimate a broker is. Usually, fraudulent brokers have poor customer support while good brokers have efficient customer support.
Other things to keep an eye out for when trying to choose a broker are:
- Account types
- Instruments offered
- Minimum deposit
Most forex brokers offer different account types that vary in specifications such as spread, minimum deposit, and a number of tradable instruments. Other differences may be minimum lot size and increment, maximum leverage, and a number of open positions, etc.
Due to the wide range of possibilities as a result of these variables, it is better to know the properties of the account you wish to open. And if it is advantageous or not.
The offering of leverage opened forex trading to regular people. Without leverage, you will need to have tens to hundreds of thousands of dollars before you can make a reasonable profit from trading. Therefore, leverage is quite an important part of retail forex trading most especially to non-institutional investors.
Leverage multiplies the profit potential of traders, making it possible to make a reasonable amount of money with hundreds of dollars. Unfortunately, leverage is a double-edged sword, as it conveniently multiplies risk/potential loss too.
Anyways, different brokers offer different amounts of leverage depending on account types, account size, and location of the trader. Therefore, it is good to know about the leverage options available to you before choosing a broker.
The instruments offered by a broker determine the opportunities available to you if you choose to trade with them. Just as more instruments means more opportunities, you might be inclined to go with the broker with more instruments for trading.
Different brokers offer a wide variety of minor and exotic pairs alongside the major forex pairs. Some brokers also offer CFDs and stocks of companies for trading.
If you are just starting out it is better to select a forex broker with a low deposit. This is to enable you to try them out before depositing huge funds. The minimum deposit for brokers can vary based on account types as stated earlier.
For more on forex brokers, visit our forum page on forex brokers and see what others are saying about them.