Choosing a forex broker
If you are interested in forex trading online, choosing the right broker and the right type of trading account is imperative, as it can often spell the difference between becoming a profitable fx trader and quickly losing your money.
In this article, we will take a look at a few examples of points that are good to keep in mind when selecting a forex broker.
Select the one that is best for YOU and YOUR trading strategy
It is not possible to say that one particular forex broker is better than all the rest, since what you need is a forex broker and a trading account that is optimal for your trading strategy and your preferences. So, instead of simply picking the first high-ranking fx broker you see on a review site, we encourage you to do your homework and look at what several fx brokers have to offer and how that fits your needs and preferences.
Some fx brokers offer several account types
When comparing forex brokers, remember that some of them offer several account types. One broker might be a poor choice for you if you sign up for the Standard Account, but a great choice if you elect one of the speciality accounts, e.g. a Micro Trader Account or a Zero Commission Account . It all depends on your preferences and what kind of trading you are planning to do.
You don´t have to be faithful
You do not have to pick one fx broker and do all your trading there.
If you are planning to do two different types of trading – such as trading two different currency pairs or employing two different trading strategies – do not settle for an okay compromise candidate. Sign up with one broker that is optimal for the first type of trading and another one that is ideal for the second type.
Take all the costs into account
Small costs here and there can add up, and each penny you spend on costs is a penny that could have been invested instead. So, it is not just costing you a penny – it is also costing you the potential profits that this penny could have yielded. Make sure you pick an fx broker that is worth the costs.
All fx brokers need to make money somehow, so if something looks to good to be true, it probably is. Just make sure you pick a broker and an account where the structure is a good match for your particular trading. If you are exclusively trading EUR/USD, the spread and commissions associated with that type of trading is more important than the rules for all the other currency pairs. If you are doing scalping, make sure you don´t select a broker and an account where you will be paying a big fixed fee for each individual transaction, and so on.
In general, fx brokers make the bulk of their profits from commissions and/or spreads, while a smaller part comes from various fees such as deposit/withdrawal fees, platform fees, etcetera.
Also remember that some associated costs might not be benefiting to the broker directly, but they will still hurt your bankroll and needs to be taken into account.. Examples:
- Does this broker require you to make an expensive phone call abroad to get phone support?
- Does this broker only accept payment methods that are expensive for you to use?
What can I trade with?
Once again: pick a broker that suits your trading plans. You might see a broker proudly offering 100+ currency pairs, but does that really matter if your plan is to focus on EUR/USD?
Also, spend some time deciding how you want to gain exposure to foreign currency prices. There are many ways to go about it in addition to the most straight forward spot trading. You might for instance realize that you are better off with a broker that offers good terms and conditions for currency-based Contracts for Difference (CFDs), currency futures trading, or some other instrument built on currency.
Pick a broker that is suitable for your bankroll
Today, many retail traders start out doing micro-transactions and gradually work their way up. This way, they do not have to risk money that would put a big dent in their everyday budget, and they can also learn about trading without risking big amounts in the process.
If this is your plan, it is important that you pick an fx broker that is suitable for this strategy. There are many brokers to chose among online today, so there is no need to go with one that will treat you like the ugly duckling just because you´re doing small-scale trading.
- Pick a broker that will allow you to make a small first deposit.
- Pick a broker that will allow you to make small trades. Even if you can technically afford to make larger trades, it is not advisable to risk too much of your total bankroll on one single trade. If you plan to make a €200 deposit, do not pick a broker where the smallest possible trade size is €100.
- Pick a broker where you don´t pay a heavy fixed fee on small trades. Big fixed fees can quickly eat up your profits from small-scale trading.
- Pick a broker where your small deposits do not result in big fixed deposit fees.
Legal matters
Selecting a forex broker that is licensed by a reputable license authority comes with several benefits, and it is also a good idea to pick one that is appropriate for your part of the world. If you reside in France but is trading through a broker based in Israel who has a license from Antigua & Barbuda, you may find yourself in a very complex legal situation if something goes wrong. If you reside in France and are using a broker based and licensed within the European Union, the legal situation is more clear.
Examples of licensing authorities that have a good reputation among the fx traders:
- UK FCA (United Kingdom)
- BaFIN (Germany, which is part of the European Union)
- CySEC (Cyprus, which is part of the European Union)
- The U.S. Commodity Futures Trading Commission (USA)
- ASIC (Australia)
- FCSA (South Africa)
- The Securities and Futures Commission of Hong Kong (Hong Kong)
- The Monetary Authority of Singapore (Singapore)
Make use of the Free Demo Account
A vast majority of the reputable retail fx brokers will allow you to open a free Demo Account with them, without requiring you to do any deposit of real money first. They will fill your Demo Account with play-money and you can use this play-money to test out the trading platform (or platforms), learn how they work, see if you like them, test-run a few trading strategies, and so on.
Reputable forex brokers that have confidence in what they have to offer will typically be 100% happy to let you “sample their goods” before you decide if you want to make a first deposit or not.
You might be eager to get into real-money trading a soon as possible, but we advice you to pace yourself and use demo accounts first. Make sure you really like a broker and platform before you make a real-money deposit and start putting real-money at risk.
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