As there is a lot of competition between forex brokers, they offer a wide range of opportunities and benefits. At the same time, choosing a broker is not an easy task for both new and experienced traders. There are several key features, such as regulation and capitalization, that speak to the reliability and competence of an organization. These indicators can be measured according to certain objective criteria.
However, the most important thing when choosing a forex broker is to determine which parameters are of interest to you. Considering your specific needs and your trading style, you will be able to find not only the broker’s outstanding characteristics but also potential bottlenecks.
Here are the key points to consider with which we suggest you decide when choosing a broker:
Is the broker regulated? If so, in which country the regulation is?
Not all countries regulate in the same way and have different characteristics and requirements for financial registration.
Therefore, any investor/trader is advised to choose a forex broker registered in a country where its activities are controlled by a regulatory agency. It is also essential to know whether the broker is regulated offshore or not, as offshore registration requirements are generally much more liberal.
Countries with strict regulatory agency requirements include:
- USA
- Great Britain
- Russia
- Eurozone
- Japan
- Australia
- Switzerland
Any trader needs to know how the regulation of his broker’s activities is carried out, as well as have a clear understanding of the currency trading regulator operating in the jurisdiction of the selected broker.
How reliable is the broker’s trading platform?
Depending on the characteristics of the hardware and software of a particular trader, he may need either an installed program or an online application. As there is a wide range of Forex brokers, choosing the platform that suits you best is critical to successful trading.
In addition, it is necessary to make sure that the trading platform is not prone to frequent crashes or freezes, especially during the release of economic news of global importance or global events when traders need stable system operation. The reliability of the platform is more important than the look and feel of the platform.
An aggressive trader, or a trader who often makes large trades, absolutely needs a stable platform that never or almost never fails. But passive and conservative traders who do not follow the market movements day and night can afford greater freedom in choosing a platform.
Capitalization
As you already know, the higher the capitalization indicators of market participants, the more credit relations they can settle with their liquidity providers, and the more competitive prices and conditions they can provide both for themselves and their clients.
The over-the-counter nature of the trade means that it is very difficult for a broker to achieve competitive prices without the margin deposited with a collateral institution or bank. This means that it is remarkably important for individual investors to study the data of the forex broker they choose to trade.
If a broker claims it is safe to work with him because he trades on the interbank market, you know what that means. At present, the interbank market is an unregulated and unregulated conglomerate, where, as a rule, central banks, investment banks, and super-large corporations act as players.
Customer Support
Another of the most important components of a broker’s work, which must be paid attention to, is customer support. The forex market is open 24 hours a day, so ideally, the broker of your choice should have customer support available at all times.
In the course of trading, you may encounter technical problems. Therefore, try to imagine such critical situations in advance and simulate the questions and requirements that you will address to the broker. You will be able to do this when you experiment on a demo account. The broker’s website may have clear clarifications; however, before opening an account, you need to make sure that the broker’s support team is efficient and effective.
Costs: Structure of Payments and Commissions
The Forex market, unlike other markets associated with the exchange operation, has a unique property that many market makers use to attract traders to trade. They promise that there will be no interest for the exchange, no regulation fees, no fees for information, and most attractively, there are no commissions. This point must be very clearly understood, because when it comes to estimating costs, your trading indicators, such as frequency, ratios, and other statistics, are of great importance.
Basically, there are three types of commission payments applied by forex brokers:
- Fixed spread
- Variable spread
- Commission payout based on spread percentage
So which should you choose?
On the one hand, you might think that a fixed spread is an optimal choice since then you know exactly what to expect. Alternatively, you may decide in favor of a smaller variable spread, considering that it is more profitable. First of all, consider that the best deal you can have is choosing the right broker – with a good reputation, capitalization, reliable ties with large banks working in the field of currency exchange. Such a broker will be able to provide you with the necessary amount of liquidity for successful trading. In addition, you need to calculate all the expected commission payments that will be present in your trading model in order to give preference to the broker with the most favorable conditions.
Some forex brokers do not charge commission; their way of making money is spread. The fewer pips the broker requires from a trade, the greater the trader’s hypothetical profit. Compare pip spreads from five to six brokers, and you can see what the differences are in their trade values.
In case a broker offers a variable spread, it can be expected that at times the spread will go down to 1 pip and then rise to 7 pips on most major currency pairs, depending on the level of fluctuations in the market. Since market makers provide clients with a double rate throughout the day, these prices can be set as fixed, which means that they will not change during the day. But a dynamic system of spreads can also be applied, where prices change along with changes in liquidity in certain currency pairs.
Since market makers provide clients with a double rate during the day, these prices can be billed as fixed, which means that they do not change during the day. But a dynamic system of spreads can also be applied, where prices change along with changes in liquidity in certain currency pairs.
These are expenses that you most likely do not need if you are in super short-term trades or trading on the news. It will not be superfluous to ask your broker how the company is working with news and whether there are technical capabilities to protect against slippage. You can choose to trade with fixed spreads, even if they are slightly higher on average, and in return, get instant execution of your trades at your desired prices.
How are Leverage and Margin Calls Carried Out?
There is a trend to prefer higher leverage, and sometimes brokers are chosen for this very parameter in forex trading. However, it should be remembered that higher leverage not only gives you the opportunity to earn more but also increases the level of risk. In addition, traders need to keep in mind that there are brokers offering fixed leverage levels, while other brokers change leverage depending on which currencies are being traded, and in addition, they may have special provisions regarding trade execution, rolling over to the next week.
Traders need to pay attention to what their broker’s margin call policy is. When closing deals, some companies adhere to the FIFO principle (first in first out – “first received, first executed”). If the margin requirements do not correspond to the current amount of funds, other brokers follow the LIFO (last in first out) principle, and some simply close all trades. Depending on what the trader prefers, he should clearly find out these points even before opening an account.
Leverage levels are of interest primarily to aggressive traders who want to use the highest possible leverage, while average or conservative traders are quite satisfied with the average leverage levels.
Laila Azzahra is a professional writer and blogger that loves to write about technology, business, entertainment, science, and health.