Trading with a market maker or a straight through broker
Understanding rollover interest and its impact on trading
Deciding on broker platform
Unraveling the hidden restrictions in brokerage services
Customer support and responses to client problems
Demo trading as a compulsory option
Usefulness of broker comparison
The main question that comes into your mind before you start trading Forex is how to choose a forex broker? Selecting the right broker for your trades is often as important as your trades in the market. It is true that having to choose from a vast list of different brokers is not an easy task. Different trading conditions, different platforms or special promotions might affect your judgement but is important to note that you’re looking for a reputable and trustworthy broker in the long run. You need to ask yourself a few questions before you dive in and start trading. Remember, it doesn’t go smoothly moving from one broker to another as this takes time.
The Forex market moves fast and you will probably lose a few trading opportunities when you have to look for another broker. So, the ideal solution will be to choose from the beginning a good broker that you wish to have your investment with and make sure that you have a very clear view of your broker’s terms and conditions and any other specific conditions the broker might have.
To help you find the proper broker you need to do your research regarding your broker. We have gathered a few points you need to know before you make your initial investment.
First off, you need to check if your broker is regulated by a competent authority. Some of the most popular regulating authorities are the National Futures Association (NFA) or the Commodity Futures Trading Commission (CFTC), the Financial Conduct Authority (FCA), the Cyprus Security and Exchange Commissions (CySEC) and various national authorities.
When you are trading with a licensed broker, it means that your broker is operating according to the law. You can be rest assured that it maintains strict standards to offer a safe environment for you to trade.
It also means that the broker is subject to periodic audits, reviews that enforce the broker to comply to the industry standards. For example, there is a minimum capital requirement that the licensed broker needs to have. Regulatory authorities ensure that these capital requirements are always met and whenever there is a breach of this requirement it will force the Forex broker to pay a large fine or to cease providing services to his clients.
Compare the advantages and disadvantages of each platform and narrow your search for choosing a broker based on the platform.
In the global Forex view, there are four different types of platforms which include broker specific platform, the MT4 platform, ECN/STP platform and web based platform. The only type of platform that offers the possibility to trade in an STP environment and is generally used platform by brokers is the MT4 platform. Therefore, you should look for a broker that offers the MT4 platform not only because it is widely used but because the advantages of the MT4 are by far more than the advantages of any other type of platform.
The potential features of the type of Forex broker you wish to work with is another vital step in this selection process.
In case you are dealing with a market maker then you should know that your positions may remain uncovered. Consequently, the broker will take the opposite side of your trade. In general lines, market makers produce profits when their clients lose money from the Forex market. Some of the market makers however, decide to cover their clients’ positions when they reach a certain volume size. This is the well-known dealing desk model (NDD). When you have a broker that has a dealing desk you will experience a delay in the execution of your trades. This is due to the dealing desk, as the people who work in the dealing will be looking to cover the large positions in better rates for the benefit of the broker. Now, let’s assume that you’re a scalper but at the same time you are trading big positions, using a dealing desk is not your best solution as you will experience delays on your execution or sometimes slippage in your trades.
The ideal solution for traders should be the straight through processing (STP) without any conflict of interest with your broker. This means that is better to trade with a broker that all positions are sent directly to the market and the broker only gets paid either from the spread markups or from the commissions charged on your trading volume.
These types of brokers transfer all your orders to their liquidity providers and they act as agents in the market.
Does your broker offer credit and debit rollover interest? If yes, you should know how much you pay or receive from the rollover interests.
Some brokers tend to charge only rollover fees despite the direction you choose to have in the market. Some brokers offer swap free accounts however, there is a limit on the time you have your positions opened or they will automatically close your positions and then reopen them for the following day. In such case, the clients are paying the spread of the currency pair every night which is considered as an additional charge to you. Because the rollover interest fee changes regularly, it would be preferable to invest with a broker that does not charge any rollover interest or any additional charges.
It is imperative to know the spreads you have on the pairs you are trading. As explained above, some of the brokers are only paid through the spreads they offer to their clients. So you will prefer to work with a broker that offers the lowest possible spread in the market and at the same time you have no additional charges for your trading.
Do more research from the broker’s website to find out if there are any additional restrictions.
You need to know the maximum amount per trade. Some Brokers restrict their clients on the maximum lot size per trade. This may affect your trading strategy because you may expect to place large positions in the market but you need to split your trades because of this restriction.
You need to know if you are allowed to trade on a breaking news or in volatile conditions. Some brokers disable the trading during these times and you end up missing these opportunities.
If the broker offers premium services to its clients what are the additional costs involved? Some brokers advertise their services but they always come with an additional requirement. Some brokers may request from you to deposit more funds in your account or to increase your trading volume. It would be preferable to have these conditions without any additional requirements.
One of the most remarkable features of reliable brokers is to provide immediate support when is needed.
This is a very important question. During your trading you may experience some difficulties or you may have some additional questions that need to be answered. Let’s just say that is better to avoid any brokers that do not offer any customer support or their client service is poor.
This is considered as a must. Not only you need to test their accounts in a demo environment but also to allow you to test your strategies in an unlimited time period. Having a demo account without any time limitations allows you to test a new strategy at any point in time and compare your trading performance with your live account performance. Remember, that the demo trading is always faster than the real trading so you should be looking for a broker that offers almost the same speed of execution for real and demo.
Comparison between brokers gives you a vivid understanding of the Forex market.
It is important to compare the brokers between them. You need to take your decision according to the broker that offers the most advantages against the rest of the brokers you found.
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