If you are a trader in the forex market, there are dozens of online forex brokers trying to get your business. Visit any financial news website and chances are you will be bombarded with an overwhelming selection of online forex broker ads. If you need to find a forex broker that suits your needs, consider the following factors.
Regulatory Compliance
The very first thing to check when selecting a forex broker is their reputation. A decent forex agent will be part of the National Futures Association (NFA), a self-regulatory organization for the futures marketplace. Moreover, it might be registered with all of the Commodity Futures Trading Commission (CFTC), which governs the commodity futures and options markets in the U.S. A flashy website does not make sure that a broker is an NFA member or under CFTC regulation. A broker will generally provide its NFA member amount from the “About Us” section of its website.
As a consequence of potential concerns regarding the security of deposits as well as the integrity of this broker, accounts should only be started by agents that are professionally controlled.
Account Attributes
Each forex broker has different account offerings. Below are a few things to consider when comparing the attributes of different brokers: leverage and margin, commissions and distributions, initial deposit requirements, and ease of deposits and withdrawals.
Leverage and Margin. Depending on the broker, forex participants may have access to the leverage available in their margin account. Leverage works in the trader’s favor on profitable positions, as the chance of making a profit increases considerably. However, leverage can immediately ruin a trader’s account, as it also increases the possibility of losses. Use leverage with caution.
Commissions and Spreads. A broker that accepts commissions may charge a predetermined portion of that spread, which is the difference between the bid and ask price of a currency pair. Many brokers who don’t charge commissions make money with wider spreads. Find out how your broker makes money and saves money. For example, the spread could be a fixed spread of three pips (a pip is the minimum unit of price change in forex), or the spread could be variable depending on market volatility. The wider the spread, the harder it is to make a profit.
First Deposit. Most forex accounts can be funded with a very small initial deposit, as little as $50. With leverage, of course, the buying power is much greater than the minimum deposit, which may be one of the reasons forex trading is attractive to new traders and investors. Many brokers offer routine, micro, and mini accounts with different initial deposit requirements.
Deposits and Withdrawals. Each forex broker has specific withdrawal and account funding policies. Brokers may allow account holders to fund accounts online via credit card, ACH payment, PayPal, wire transfer, bank check, or business or personal check. Withdrawals are usually made by check or wire transfer. The broker may charge a support fee.
Trading Platform
The trading platform is the investor’s portal to the markets. Therefore, traders should ensure that a broker’s system and software includes the technical and fundamental analysis tools they need to facilitate entry and exit trades. This last point is very important: a Forex platform will have clear buy and sell buttons, and some have a “fear” button that closes all open ranges. Other facets include customization options, order entry types, automated trading options, strategy builders, backtesting features, and trade alerts. Most brokers offer free demo accounts that allow traders to test the trading platform before funding and opening an account.
Currency Pairs and Customer Support
When there is a large number of currencies to trade, only a few get the most attention and are therefore traded with the best liquidity. A broker can offer a huge selection of currency pairs, but the most important thing is that they offer the pairs that interest you as a trader. Also, forex trading takes place 24 hours a day, so a broker’s customer support should be available at all times. A quick call to a broker can give you a fantastic idea of the type of customer service they offer and average wait times.
