The foreign exchange market transactions in a day add up to more than $5 trillion. Thus, it is the world’s largest financial market. The forex market does not have a central marketplace and because of this, any trader that wants to trade in currencies online must do it through a forex broker. There exist many forex brokers out in the market. In fact the numbers are overwhelming and choosing the right one is a challenge. However, it is important that the trader chooses a trusted and reliable forex broker. This has to be done with a great deal diligence and care. Read on to find out five important considerations that a trader has to keep in mind when attempting to choose trusted forex brokers.
Tip #1: Regulatory compliance is important
A reputed and trusted forex broker will comply with all regulations that are applicable to the forex market. Regulatory organizations develop the rules, services and programs that would work to protect investors, preserve the integrity of the forex market, and help the members of these bodies to meet regulatory responsibilities. As an example, in the United States, a forex broker of repute will be registered with the US Commodity Futures Trading Commission (USCFTC) and will be a member of the National Futures Association (NFA). The latter is a regulatory organization for the futures industry prevalent in the US. However, the CFTC is an independent government agency involved in regulating the futures and options markets for commodities in the US.
If a trader is looking at websites to choose a forex broker, the mere fact that the website is glossy and god looking does not guarantee that the broker is a member of any regulatory body. However, if the forex broker is a member, they would have displayed a membership number in the ‘About Us’ page of the website. This makes for a more trusted forex broker. Each country has its own regulatory body. With a view to safeguarding the deposits of the trader and to protect the integrity of the broker, it is important to open accounts with only those firms that are duly registered with regulatory authorities of the specific country.
Tip #2: Check out all the offers made by the forex broker
Some of the aspects that forex traders should check when registering with a trusted forex broker are the leverage and margin, initial deposit, commissions and spreads, and methods of deposit and withdrawal.
Leverage and Margin
Commonly, most traders offer leverages of 50:1 or 200:1. However, this is dependent on individual brokers. Leverage is an advantage that is offered to the trader by the broker. As an example, if the leverage offered by the broker is 50:1, and the initial deposit is $1,000, the trader can hold a position valued up to $50,000. With leverage, the potential for huge profits as well as losses is equally magnified. The leverage offered by a broker should be treated with caution.
Commissions and Spreads
A forex broker makes his money through commissions and spreads. The broker sometimes charges a percentage of the spread as the commission. The spread is the difference between the bid and ask prices of the currency pair that is being traded. Some fx brokers charge no commissions and make money by offering wider spreads. The spread may either be fixed or variable according to market volatility. However, the point to be noted is that wider spreads generate less profit. Popular pairs of currencies such as EUR/USD that are commonly traded have tighter spreads than others.
Individual brokers charge different amounts as initial deposit amount for the traders who register with them. Standard, mini and micro accounts are available with trusted forex brokers. Those brokers that offer leverage are able to raise the buying power of the traders and for this reason brokers that offer leverage are popular. Some brokers offer accounts with a low initial deposit of, say $50.
Deposits and Withdrawals
The policies for deposits and withdrawals vary by the broker. Online accounts of forex brokers can be funded using credit cards, via Paypal or other digital wallet systems, wire transfers, checks (business or personal). Trusted forex brokers usually allow withdrawals through wire transfer or checks. Some brokers charge a fee for deposits/withdrawals.
Check the trading pairs offered
When registering with a forex broker, it is important to make a note of the currency pairs that are offered for trading. Whereas there are many pairs that are available, the ‘major’ ones are those that trade with ease and high liquidity. Examples are: USD/JPY, EUR/USD, USD/CHF, GBP/USD, etc. Though a broker may offer a wide variety of currency pairs, the trader should choose one that offers the currency pair that he/she is interested in.
Customer service is important
Customer support will be available round the clock from trusted forex brokers. The ease of accessibility and availability of help is another important factor. If you are on the lookout for a broker, the best way to check on availability of help is to make a quick call. The response time and the manner in which the query is handled can reveal a lot about the service that is provided. Ensure that all your questions about leverage, regulations, spreads and withdrawals and deposits are all answered to your satisfaction. Also, make sure to find out their trade volumes and how long they have been in business. Larger businesses give better prices and faster executions.
Examine the trading platform thoroughly
The trading platform should be navigable and easy to use. The platform should have the relevant technical and fundamental analysis tools. It should also allow trading to be done with ease. Clear ‘Buy’ and ‘Sell’ buttons should be present. Well-designed interfaces will help the beginner trader to avoid common and accidental mistakes than can lead to losses.
Other general points that can be kept in mind include options for customizations, trading alerts, strategy builders, back-testing, automated trading options, etc. Choosing a broker that offers free demo account will help the beginner to conduct mock trades before funding the actual account with money.
Confidence in the broker helps the trader to spend more time productively on analysis and development of strategies. It is a good idea to do the basic research prior to choosing a broker.