With the amount of money involved in the forex industry, it is no surprise that traders these days have a wealth of options open to them when choosing their preferred forex broker.
Unlike the stock market, where prices are maintained by a single exchange, forex prices fluctuate on what is known as the ‘interbank’ market – a place where big banks and institutions trade currencies at very low spreads directly with each other.
Guest post by FXTM
Unfortunately, retail traders rarely have access to the interbank market as to do so would require large amounts of capital and credit with the bank. Forex brokers thus provide a kind of middleman between the interbank market and the average retail trader – and their spreads are getting better all the time.
Reputation
It goes without saying that reputation is a big consideration when selecting a forex broker – you are, after all, putting money in someone else’s hands, and unfortunately there are some dubious outfits out there.
The best way to judge whether a broker can be trusted is to look at the credentials on their website. Are they regulated by a professional body such as the Commodities Futures Trading Commission (CFTC) or the National Futures Association (NFA)? Or if headquartered overseas are they overseen by the FSA (UK) or the ASIC (Australia) or BaFIN (Germany)?
Normally located in the ‘About’ section, if you cannot find this information on a broker’s website it is best to steer clear.
Another consideration you should make is how well the broker is rated by other traders. To do this is pretty simple – simply look around the web – on message boards and forums – and in magazines to get advice from other traders.
Spreads
After reputation, the spreads are the most important factor when choosing a forex broker, since they can ultimately determine whether you succeed or fail.
Since most brokers these days rely on making money on the spread differential between their spreads and the interbank spreads it is important to compare these across the market. Spreads can vary at different times and on different markets so make sure you choose a broker with the tightest spreads for the markets that you want to trade. A couple of pips here or there can make all the difference.
Recently, there has been a move towards ECN brokers, these are providers with no dealing desks who trade directly to the interbank market. They are therefore providing some of the tightest spreads at the moment.
Features & Support
It is also important to choose a broker that provides all of the necessary features you need to trade efficiently. That may include bespoke indicators or different order types or compatibility with MetaTrader 4. Whatever you need to help you make better trading decisions is worth consideration when choosing a broker, as is the level of support that that broker provides.
At the very least, you’re broker should provide timely response to emails and 24 hour telephone support during market hours, since if you’re platform goes down, you may need to contact them urgently.
Share
