Recently, more and more people are looking towards trading as a form of investment as well as a form of business. Forex Trading or Currency trading is fast becoming one of the most popular forms of investment trading today.
And with minimum start up capital required, the barriers to entry are fairly low and this has made it easier for the man in the street to start trading the Forex market.
However, unless you are a bank or large financial institution, you will require the services of a broker to be able to trade currencies.
Luckily, with an increase in the demand for FX Trading, there is a corresponding increase in the number of Forex brokers in the market.
However, with so many brokers to choose from, the problem facing most potential Forex traders is not how to trade but how to select a reliable broker to begin trading with.
Unfortunately, not all brokers in the market are the same. You will need to find a suitable broker that caters to your specific needs as a trader.
And from experience, this could prove to be the tricky part as not all brokers offer the same services or have the same charges and policies. Slight differences in charges such as the pip spread will have a large impact on your profits’ bottom line.
Seriously, if you wish to make a living as a Forex trader, you need to focus on the markets and not have to worry about questionable brokers. Therefore, choosing a reliable Forex currency trading broker should be one of the top priorities you need to do before you even start trading.
There are actually several factors that make a foreign exchange broker a good one, and here are my top 10 tips for choosing good currency trading brokers.
Reputation is important in this business as there are quite a number of “fly-by-night” operations out there in the market. Basically, the rule of thumb is to stick with the more established Forex currency trading brokers who have a good track record.
An important factor to note is that all of their business dealings must be verifiable. Do they have a legitimate office with many satisfied customers? Have they been in business for many years or did they just pop up overnight?
You can find out a great deal of information from unbiased review websites that talk about their experiences with brokers. If someone got ripped off before, you should probably steer clear.
Dependable brokers should be transparent in their dealings and operations. Relevant information about how they function must be readily available online so that potential traders can easily find out more about their reputation as well as performance.
No matter which country you live in, always chooses a Forex broker that is conducting business in a country where their activities are monitored by a regulatory authority. A reliable Forex broker must be regulated and accountable to the relevant authorities.
For example, the Swiss banking system is one of the most tightly-run ships in the world regulated by the Swiss Federal Department Of Finance, while US Forex trade brokers should be official members of the National Futures Association (NFA) and registered as a Futures Commission Merchant (FCM) with the Commodity Futures Trading Commission (CFTC).
In other words, they must adhere and conform to industry rules and regulations. The last thing you want is some unregulated broker in the middle of nowhere holding onto your money. If they go under, good luck ever getting your money back.
If a broker is not regulated by any monetary authority, it might be better to select another broker instead.
3. Differences In Pip Spread
Unlike stock brokers, currency trading brokers don’t charge a fee or commission, instead, they make their commission from the difference in the pip spread of the currency pair when you trade.
Unlike other financial markets, the currency market is not traded on a central exchange, the value of this spread is thus determined by the broker you are using instead.
Most Forex brokers publish live or delayed prices on their websites so that traders can compare spread differences and some brokers even offer a variable pip spread.
At first glance, the concept of a variable spread may appear tempting because of the volatility of the Forex Market. When the market is quiet, the spread is relatively small, but when the market really heats up, the spread difference might just widen large enough to wipe out your profits.
Unfortunately, many brokers out there are referred to as “bucket shops”. They don’t have your best interest in mind and some have been known to change the spreads around to their advantage.
The bottom line here is still to look for FX brokers with fixed and low pip spreads regardless of how the market moves.
4. Speed Of Execution
In my book, this is something most novice traders seldom notice when they sign up for a trading account.
Most brokers do publish live prices on their trading platform but the question here is how fast are they able to execute the order once you click the “Buy” or “Sell” button.
Speed of execution of the order is imperative especially if you are a scalper trading the 5 minute charts, can’t possibly sit around waiting another 5 minutes just for the order to confirm right?
Luckily, the best solution to this problem is to open a demo account with the broker and given them a test drive. This will allow you to test trial their trading platform’s speed of execution.
5. Minimum Trading Account Size
Nowadays, broker leverages are getting higher and higher to cater for the small retail trader who have limited capital but wants a piece of the Forex action.
Micro and Nano accounts are available but most brokers offer the 2 standard types of trading account sizes, namely the Standard and Mini account.
There key difference between a Standard and Mini account is that a Standard account trades in 100,000 units, while a mini account trades only a tenth of that size, or 10,000 units per lot.
In other words the mini account deals in one tenth the size of the regular account. This allows you to risk a tenth of what you would be risking in the regular account.
6. Margin & Leverage
Margin accounts constitute the basis framework of Forex trading, so make sure you are fully aware the broker’s margin terms before rushing to open a live trading account, the last thing you want to hear is a margin call from your broker.
Make sure you are fully aware of how your broker calculates the margin requirements and does it change according to the currency pair traded? Is it fixed or variable at different times of the day or week?
Do take note that some brokers offer different margin requirements for Standard and Mini accounts, so beware.
And when it comes to leverage, most traders are familiar with the 1:100 ratio, but are did you know that some currency trading brokers today even offer leverages of up to 1:400.
A word of caution if you are a novice trader, don’t use too much leverage as this is one of the key reasons so many newbie traders get wiped out so fast. Remember, the key to winning the Forex game is to compound small and consistent profits.
7. Rollover Rates
Rollover rates are charges that are incurred when traders move their positions to the following trading day.
If you are a scalper or a day trader, this rate might not affect your trading account but if you are a swing trader or a long term trader, this seemingly small figure might sometimes snowball if you are not aware.
That is why it is important to find out the minimum margin requirements to earn on an over-night position? Is it a mere 0.5% or a staggering 2%, go do the math.
8. Trading Platform
A good trading platform should not only show real live prices that allows traders to “Buy” or “Sell”, but also a host of other features like charting and technical analysis tools.
Some platforms even offer more advanced functions like trailing stops, mobile trading and even the use of automated trading software called expert advisers.
Most brokers will have their own proprietary trading platform but many are using the MetaTrader 4 platform as it is a fairly easy to use a system that can cater to all levels of traders ranging from novices to experts.
In my book, the type of trading platform used can either make trading the Forex market a breeze or a real hassle, so make sure you get a feel of the platform by signing up for a demo account.
9. Technical Support
Typically, the type of support comes in the form of telephony or email support, and even “Live Chat” in some cases.
Since the Forex market is a global 24 hours market, likewise the corresponding support provided by the broker should be 24 hours around the clock as well.
Remember, it might be 3pm in the afternoon for you, but it could also be 3am in the morning for another trader across the globe, so ensure that there will be someone from the broker’s office to pick up the call if something goes wrong.
An essential aspect of support that must be high-lited is the ability to close an “open” position over the telephone in the unfortunate event that your PC stalls or the internet connection fail, beware, anything can happen if Murphy’s Law kicks in.
10. Additional Value Added Services
Most of the better Forex trade brokers offer great value added services in terms of free webinars, technical tools, e-books, articles and even daily market analysis and updates from their own panel of in house consultants.
This might just come in handy if you are the type of trader who trades fundamentals.
Well, that’s my 2 cents worth when it comes to finding reliable Forex trade brokers, hope it provides you sufficient information for a good head start in all your Forex trading ventures.
Have a safe and profitable trading day ahead.