5 Tips For Selecting A Forex Broker

Discussion in 'Forex - Currencies Forums' started by chihab, Aug 24, 2014.

  1. chihab

    chihab New Member

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    The foreign exchange market accounts for more than $4 trillion in average traded value every day, making it the world's largest financial market. Since there is no central marketplace for the forex market, traders must select a forex broker to help them conduct their trading activity. There are a large and growing number of forex brokers, and choosing the right one requires cautiously sifting through an overwhelming number of magazine and internet advertisements. In this article, we'll look at five considerations when choosing a forex broker in today's competitive forex marketplace.


    1. Regulatory Compliance
    In the U.S., a reputable forex broker will be a member of the National Futures Association(NFA) and will be registered with the U. S. Commodity Futures Trading Commission(CFTC) as a Futures Commission Merchant and Retail Foreign Exchange Dealer. The NFA is an industry-wide, self-regulatory organization for the futures industry in the United States. It develops rules, programs and services to protect the integrity of the market, traders and investors, and to help members meet regulatory responsibilities. The CFTC is an independent government agency that regulates the commodity futures and options markets in the United States. The CFTC's mission is to "protect market users and the public from fraud, manipulation and abusive practices related to the sale of commodity and financial futures and options, and to foster open, competitive and financially-sound futures and option markets."


    A flashy or professional looking website does not guarantee that the broker is an NFA member or under CFTC regulation. A broker that is a member of the National Futures Association and subject to CFTC regulations will state this and its NFA member number on its website, typically in the "about us" section and on each web page. Each country outside of the United States has its own regulatory body. Due to potential concerns regarding the safety of deposits and the integrity of the broker, accounts should only be opened with firms that are duly regulated.

    2. Account Details
    Each forex broker has different account offerings, including:





    • Leverage and Margin: Forex participants have access to a variety of leverageamounts depending on the broker, such as 50:1 or 200:1. Leverage is a loan extended to margin account holders by their brokers. For example, using 50:1 leverage, a trader with an account size of $1,000 can hold a position that is valued at $50,000. Leverage works in a trader's favor with winning positions since the potential for profits is greatly enhanced. Leverage can, however, quickly destroy a trader's account since the potential for losses is magnified as well. Leverage should be used with caution.
    • Commissions and Spreads: A broker makes money through commissions and spreads. A broker that uses commissions may charge a specified percentage of the spread, the difference between the bid and ask price of the forex pair. However, many brokers advertise that they charge no commissions, and instead make their money with wider spreads. 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. A EUR/USD quote of 1.3943 - 1.3946 has a three-pip spread. That means that as soon as a market participant buys at 1.3946, the position has already lost three pips of value since it could only be sold immediately for 1.3943. The wider the spread, then, the more difficult it can be to make a profit. Popular trading pairs, such as the EUR/USD and GBP/USD will typically have tighter spreads than the more thinly-traded pairs.




    Initial Deposit: Most forex accounts can be funded with a very small initial deposit, even as low as $50. With leverage, of course, the buying power is much greater than the minimum deposit, which is one reason forex trading is attractive to new traders and investors. Many brokers offer standard, mini and micro accounts with varying initial deposit requirements.


    Ease of Deposits and Withdrawals: Each forex broker has specific account withdrawal and funding policies. Brokers may allow account holders to fund accounts online with a credit card, via ACH payment or via PayPal, or with a wire transfer, bank check or business or personal check. Withdrawals can typically be made by check or by wire transfer. The broker may charge a fee for either service.

    3. Currency Pairs Offered
    While there are a great deal of currencies available for trading, only a few get the majority of the attention, and therefore, trade with the greatest liquidity. The "majors" are the U.S. dollar/Japanese yen (USD/JPY), the Euro/U.S. dollar (EUR/USD), the U.S. dollar/Swiss franc (USD/CHF) and the British pound/U.S. dollar (GBP/USD). A broker may offer a huge selection of forex pairs, but what is most important is that they offer the pair(s) in which the trader or investor is interested. (For more information on the major pairs, see our tutorial on Forex Currencies.)

    4. Customer Service
    Forex trading occurs 24 hours a day, so a broker's customer support should be available at any time. Another consideration is the ease with which one can speak with a live person, rather than a time consuming, and often frustrating, auto attendant. When considering a broker, a quick call can give you an idea of the type of customer service they provide, wait times and the representative's ability to concisely answer questions regarding spreads, leverage, regulations and company details. These details include how long they have been a forex broker and the size of their trade volume (larger brokers generally have access to better prices and execution).

    5. Trading Platform
    The trading platform is the investor's portal to the markets. As such, traders should make sure the platform and any software is easy to use, visually pleasing, has a variety of technical and/or fundamental analysis tools, and that trades can be entered and exited with ease. This last point is especially important: A well-designed trading platform will have clear ‘buy' and ‘sell' buttons, and some even have a "panic" button that closes all open positions. A poorly designed interface, on the other hand, could lead to costly order entry mistakes, such as accidentally adding to a position rather than closing it, or going short when you meant to go long.

    Other considerations include customization options, order entry types, automated trading options, strategy builders, backtesting and trading alerts. Most brokers offer free demo accounts so that traders can try out the trading platform prior to opening and funding an account.

    The Bottom Line
    If you have confidence in your forex broker, you will be able to devote more time and attention to analysis and developing forex strategies. A bit of research before committing to a broker goes a long way, and can increase an investor's odds of success in the competitive forex market.


     
    Last edited by a moderator: Jul 8, 2016
  2. dariel2323

    dariel2323 Well-Known Member

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    Good information, excellent for beginners. In my case I am always aware of these tips, then do not fail in the market and these sites. I always recommend it. Thank you for sharing this great information.
     
  3. Jimmy

    Jimmy Member

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    Forex involves research, research and more research.

    My advice is: Don't put your money on the line if you do not trust your broker 100%. Look around, read the forums and choose wisely.

    It also helps if you have a good trading strategy!
     
  4. JoshPosh

    JoshPosh Guest

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    There are a lot of reviews on different brokers out there. Just be patient and research the hell out of brokers.
     
  5. Strykstar

    Strykstar Well-Known Member

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    Nice tips, it would be a great guide for beginners it it wasn't so lingo heavy, but it should do just fine as long as they look up the definitions of some things.
     
  6. Linda Smith

    Linda Smith Senior Investor

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    A trader should pick a suitable broker to trade in the forex market. Without a suitable broker it is quite difficult to invest in the huge market. Broker can be the well wisher for any trader. But Broker has to be good. Wrong broker can create difficulties in trading. As a trader, I choose Tpglobalfx as my broker. It provides low spreads and high leverage. The trading strategy is quite easy.
     
  7. Lisa Maria

    Lisa Maria Senior Investor

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    Broker is the main element for trading in forex market. But choosing a broker is not so easy. There are a lot of broker in this huge market. Some of them are good and some of them are bad. Select a good broker from all of them is a difficult task. So, To make the task easy you can visit AtoZ Markets. They provide broker reviews which can help you to check all the brokers and know about their services. After researching them you can easily select a suitble broker for you.
     
  8. Brentwood

    Brentwood Senior Investor

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    The key is to understand how it really works and who is right to work with. I was losing funds to a broker and by the time i realised it, i had already lost $52000 which was over half of my savings. I met a friendly trader and she directed me to the recovery agent Mr Bart Kasch. He helped me recover all my money, every penny. Referred him to friends and colleagues already, you can contact him if you need help at [email protected]
     
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