Learn Forex Trading Lesson #4: Choose your broker

Filed under: Learn Forex Trading |

HOW TO CHOOSE A FOREX BROKER

Choose a forex broker

Choose a forex broker carefully - it might be the difference between winning and losing

Any trader who wants to do well in forex trading will have to seriously consider the question of choosing a forex broker. Forex brokers are the companies that provide the platforms that connect traders to the different global exchanges on which currencies are traded.

There are many forex brokers online and this can make the job of choosing one a daunting task. If you visit some of the websites of forex brokers, you will see beautifully designed web pages with fantastic and sweetly-worded sales pitches. But behind the glitter you see on the sites, you need to be concerned about how to select a good forex broker that will meet your requirements and guarantee safety of your funds.

What parameters do you need to consider when choosing a forex broker?

1)      Regulation

Safety of your trading funds is the paramount issue when choosing a forex broker. While the forex market is unregulated (there is no centralized exchange located in one place), the companies that provide brokerage services are regulated. Each country has its own regulatory agencies and regulatory policies. You need to be familiar with these.

US: National Futures Association (NFA) and Commodity Futures Trading Commission (CFTC)

UK: Financial Services Authority (FSA)

There are other agencies that regulate brokers in the European Union. A trader can verify the status of a forex broker from the websites of these agencies. Choose a broker that has a clean record. Review sites like forexpeacearmy.com made up of thousands of traders whose opinions about forex brokers (most of these from practical experience) give you the best possible information about broker performance. You can join some of these sites for free to get access to this information.

2)      Customer service

The currency market is a 24 hour market. As such, a good Forex broker should be able to respond to your requests and inquiries on a 24-hour basis, or at least on an 18-hour basis. Brokers with bad customer service should be avoided. You need to have a broker who will be there for you. After all, it is the spreads you pay when you trade that keeps them in business.

3)       Choice of Trading Instruments

Choose a Forex broker that offers a wide variety of instruments to choose from. Sometimes, I like to trade crude oil and take a break from trading currencies, especially as crude oil tends to have a volatility that surpasses most currencies. So I would love a broker who can offer me this. Choose one that can give you what you want.

4)      Software

Choose a broker that offers a user-friendly platform. As a trader, you do not want to be juggling between the rigours of trading and a difficult platform. Choose a broker that offers a demo trading platform where you can test your skills before going live with real money.

5)      Reputation

Always check a broker’s reputation from forex trading online forums. On these forums, you will see thousands of opinions and reviews by veteran traders who have used several brokers. You will get information about a broker’s ability to settle withdrawal requests promptly, customer service, etc. If a broker has too many complaints, you will do well to avoid such. Also avoid brokers who are notorious for heavy slippages (filling in trades at prices that cost the trader more).

You can see that there are many issues to consider before you commit your funds to a forex broker. Do your due diligence, shop around and apply what has been outlined above and you should be ok.

Some of these features we have discussed above can be seen in a broker comparison table, available at babypips.com. The table below is an abstract from that source.

Company Information

AVAFX              MARKETIVA                                     FXPRO

Year of foundation 2006 2005 2006
Year of forex division 2006 2005 2007
Number of employees Not Disclosed 34 154
Number of client accounts Not Disclosed 1,000,000 130000
Adjusted Net Capital US $25,000,000 Not Disclosed Not Disclosed

Account Options

Account currency USD USD, EUR, JPY, GBP, CHF, CAD, AUD USD, EUR, GBP, JPY
Type of broker Dealing Desk Dealing Desk Dealing Desk
Types of accounts Mini Account (10K), Standard Account (100k) No set account type Mini Account (10k), Standard Account (100k)
Commission No commission, no fees None N/A
Contract sizes offered minimum 10k units Flexible minimum 10k units
Maximum leverage 200:1 100:1 500:1
Rollover interest No No No
Deposit options Bankwire, Paypal, Neteller, Moneybookers, Moneygram Bank Wire, Liberty Reserve, WebMoney, E-Dinar Bankwire, Credit Card, Debit Card, PayPal, Neteller, Moneybookers
Withdrawal options Bankwire, Paypal, Neteller, Moneybookers, Moneygram Bank Wire, Liberty Reserve, WebMoney, E-Dinar Bankwire, Credit Card, Debit Card, PayPal, Neteller, Moneybookers

Trading Platform

Free demo account Yes Yes Yes
Demo account expiration Yes No No
Streaming news feed Yes Yes Yes
Charting package Yes, three charting options Integrated Integrated within Metatrader 4
Trade from charts Yes No Yes
Market commentary Yes No Yes
Email alerts No No No
Mobile alerts No No Yes
Hedging Yes Yes Yes

Customer Service

Customer service access Phone, Fax, Email, Instant Messenger Website, Email, IM Phone, Fax, Email, Instant Messenger
Customer service hours 24 Hr Sunday 5:00 pm EST to Friday 5:00 pm EST 24 Hours per Day
Place trades over the phone? Yes No Yes
Email response time up to 24 hr Within 4 hours 24 Hours

This table shows the information traders should know about their forex brokers, using three brokers as examples.

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