When you feel you are ready to start trading currencies, you need to find a reliable Forex broker. First we should address exactly what a Forex broker is. A Forex broker is a firm or company that provides FX traders with access to a trading platform that enables them to buy and sell foreign currencies. Currency traders utilise these brokers in order to access the 24-hour Forex market. A currency trading broker, often referred to as a retail Forex broker, handles a very small portion of the overall volume of the foreign exchange market. FX brokers are mainly compensated through the 'bid-ask spread' of a currency pair.
Your first priority is to carry out research with the aim of discovering whether a broker possesses an exceptional reputation and whether they are able to meet your needs. The vast majority of the main Forex brokers will permit prospective clients to test their services with a practice or demo account, so that they can obtain a good understanding of what the system is actually like. It would be wise of you to test out as many platforms as you can prior to deciding on which broker to use. The purpose of the remainder of this article is to teach you how to choose a good Forex broker.
The ways of making a wise choice
As you may know, the foreign exchange market has a daily volume of more than $4 trillion, consequently making it the world's largest financial market. As there is no central marketplace for the FX market, traders must select an FX broker to assist them in conducting their trading activity. There is a large and growing number of Forex brokers, and choosing the right one demands time and research. We have prepared five rules to facilitate your search.
How important is regulatory compliance?
The first one thing you need to check when looking for trusted Forex brokers is regulatory compliance. For instance, in the US a reputable FX broker will be a member of the National Futures Association (or NFA) and will be officially registered with the US Commodity Futures Trading Commission (CFTC) as a futures commission merchant, as well as a retail foreign exchange dealer. Furthermore, the NFA is an industry-wide, entirely self-regulatory organisation for the futures industry in the USA. Its main functions are to develop rules, programs and also services to provide protect the market and it's participants. Beside that, it is there to ensure members meet regulatory responsibilities and certain obligations. The CFTC is a fully independent government agency whose function is to regulate the commodity futures and options markets in the USA. The primary mission of the CFTC is to protect market users and the public from any kind of manipulation, fraud and abusive practices related to the sale of commodities and financial futures and options. It also aims to stimulate open, competitive and financially sound option markets and futures.
If you look for Forex brokers online, a professional looking website does not guarantee that the broker is an NFA member or under CFTC regulation, and the same goes with the according institutions in the country of your residence if not in the US. If a broker is a member of the National Futures Association and subject to specific CFTC regulations they will state this, and its NFA member number will be displayed on its website, most commonly in the about us section and as well as on every web page. As previously mentioned, each country outside the USA has its own regulatory body. Owing to potential concerns regarding the safety of particular deposits and the integrity of the broker, all accounts should only be opened with companies that are properly regulated.
The list of significant account details
Every eminent Forex online broker has various account offerings, that include the following.
First of all - leverage and margin. FX participants have access to a range of leverage amounts depending on the broker, like 50:1 or 200:1. Leverage is a loan extended to margin account holders by their brokers. For instance, by applying a 50:1 leverage, a Forex trader with an account size of $1,000 can hold a position that is valued at $50,000. Leverage works in a trader's favour with winning positions as the potential for profits is considerably amplified. However, leverage is capable of hastily destroying a trader's account because the potential for losses is augmented as well. This leads us to the point that leverage is should only be used with caution.
The second offering of Forex trading brokers is spreads and commissions. A Forex broker makes money through established commissions and spreads. An FX broker that utilises commissions may charge a stated percentage, or the difference between the ask and the bid price of the currency pair. Nonetheless, a lot of brokers advertise that they don't charge commissions and instead make their money with wider spreads. For instance, the spread could be a fixed spread of three pips, or the the spread could be variable depending on market volatility. Imagine that a EUR/USD quote of 1.3943 - 1.3946 has a three pip spread. This implies that once a market participant purchases at 1.3946, the position has already lost three pips of value, as it could solely be sold instantly for 1.3943. Therefore, the wider the spread, the more complicated it can be to make a profit. In fact, common trading pairs like the GBP/USD and EUR/USD will generally have tighter spreads than the more thinly-traded pairs.
The third one is the initial deposit that an online Forex broker may offer. The majority of Forex accounts can be funded with a very limited initial deposit, even being as low as $50. Of course, with leverage purchasing power it can be considerably greater than the minimum deposit. That is one of many reasons why Forex trading is so appealing to new traders and investors. Many brokers offer standard, mini and also micro accounts with changeable initial deposit requirements.
And the last one is the ease of deposits and withdrawals. Every FX broker has their own account withdrawal, as well as funding policies. Brokers may permit account holders to fund accounts online via PayPal, simply with a credit card or via ACH payment, not to mention wire transfer, bank cheques or either business or personal cheques. Usually withdrawals can be made by cheque or by wire transfer. Those that are considered to be reputable and good Forex brokers might charge a fee for each service.
What should be outlined about offered currency pairs?
Whilst there are an outstanding number of currencies accessible for trading, only a few receive a lot of attention and thus trade with the greatest liquidity. The majors are USD/JPY, EUR/USD, USD/CHF and also GBP/USD. Those who position themselves as top Forex brokers might offer a wide choice of Forex pairs. However, what is of paramount importance is that they offer the pair (or pairs) in which the FX trader or investor is interested.
The significance of customer service
FX trading takes place 24 hours a day, so a broker's customer support must be available at any time. It should also be easy to actually speak to a live person, rather than just a time consuming and frequently frustrating auto-attendant. While considering a best Forex broker, a quick call can give you an idea of the kind of customer service they provide, wait times and also the representative's capability of answering questions about spreads, regulations, leverage and company details in a concise manner. Those details include how long they have been an FX broker and the actual size of their trade volume. As you well know, larger brokers mainly have access to better execution and prices.
The integral part of brokerage - trading platform
The trading platform is the investor's portal to the market. As such, Forex traders should make sure the trading platform and any kind of trading software is simple to use and visually attractive. It also should have a range of technical and fundamental analysis tools, and it should be easy to enter and exit trades without additional effort. This last point is crucial when considering how to choose a Forex broker worthy of your attention: a well-designed Forex trading platform will have simple 'buy' and 'sell' buttons - and some even have an emergency button that closes all of the open positions. A poorly designed user interface could lead to costly order entry mistakes such as accidentally adding to a position rather than closing it, or going short when you meant to go long. These discrepancies and mistakes can make your trading process unprofitable and emotionally draining. Be sure that you choose a reliable one such as MetaTrader 4, as it is the most popular choice amongst the best Forex brokers.
In addition, other considerations to include are: the ability to customise, order entry types, automated trading options, backtesting, strategy builders and also trading alerts. Most brokers offer free demo accounts so that Forex traders can try out the trading platform without any risk.
There is no best Forex broker in the world, but If you are confident with your Forex broker, you will be capable of devoting considerably more time and precious attention to analysis and developing various FX strategies. Research prior to committing to a specific broker can go a long way and can improve a trader's odds of being successful in the competitive foreign exchange market.