With a daily volume of $5.1 trillion, the forex market is currently the largest financial market in the world. With the rate at which the market is growing, the forex market is only expected to become more significant.
One of the main factors that affect your success in this market is your broker. Due to the lack of a central market, traders engage in forex trading through a broker. Working with a broker undoubtedly has its benefits, but it has a lot of risks associated with it, too.
Choosing the wrong broker can lead to severe repercussions. Due to the volatile nature of the forex market, traders must select a broker that can handle this unpredictability and won’t shut down when the going gets tough.
Knowing how crucial a good forex broker is, here’s what you should keep in mind while choosing one:
A trading platform is a portal through which you can access the market. When considering different brokers, you should ensure their platform is reliable and user-friendly, while also being equipped with the necessary analysis tools that will help you track your trades and make informed trading decisions in the future.
Most importantly, the platform should facilitate ease of entry and exit. An excellent trading platform always has, among others, a prominent buy and sell buttons and also a panic button that immediately closes open positions. On the other hand, a poor trading platform leads to order errors that could have been avoided otherwise. Other features you should consider are order entry types, strategy-building tools, automated trading, and trading alerts. Many brokers also give you the option to try demo accounts for free, so you can try the platform before opening an account.
Variety of Currency Pairs
While there is a wide range of currencies you can trade with, only a select few currency pairs get most of the attention. These currency pairs, hence, are the most liquid. What’s more imperative than a vast range of currency pairs is offering the major currency pairs you’d likely trade with.
The forex market never shuts down and is operational all day and all night long. Due to the unpredictability of the different crises you can face, your broker needs to be available for support at any time. It’s also crucial for traders to be able to reach out to a live person, instead of an auto-attendant, which does not only waste time but is frustrating, too.
When you’re exploring different options, a short chat can help you determine the support options various brokers provide. You should primarily assess their ability to answer complex questions related to regulations and trades. You should also familiarize yourself with information about the company, such as its size and how long they’ve been operational.
What differentiates a good broker from a bad one is the level of protection it provides its traders. Since there is a lot of personal and financial information involved, you need to give this aspect extra focus.
Every reputable broker will be a member of the country’s regulatory body. For instance, in the United States, the regulatory authorities are the National Futures Association (NFA) and the U.S. Commodity Futures Trading Association (CFTC). Similarly, the regulatory bodies in the United Kingdom are the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA).
These regulatory bodies help maintain the market’s integrity by developing rules and services. Every broker that’s a member of its respective country’s supervisory authority will explicitly state this on their website.
Regardless of the type of forex trader you are, every trade involves specific transaction costs. Every time you engage in a trade, there will be a commission (sometimes called spread) involved, so it’s best to choose a broker that provides the most affordable rates.
Brokers often charge a specific percentage of the spread, which is the difference between the asking price and the bid of the forex pair. While many brokers claim they don’t charge commissions, they compensate for it through wider spreads. The wider your spread, the more difficult it will be for you to make a profit on your trade.
Before you select a broker, you should know whether you’ll need tight spreads for the kind of trades you’ll open. Once you know what you want, you can review different options and select the one that best suits your needs.
Every forex broker provides different offerings. These offerings mainly differ on the following:
Leverage and margin: In forex trading, leverage refers to money borrowed from the broker to invest in currency. Every broker offers different leverage amounts, and while it can work in your favor, it can also work against you. Hence, you should always use leverage carefully.
Initial Deposit: The majority of forex accounts can be funded with minimal initial deposits, and brokers often differ on this amount.
Deposits and withdrawals: Every broker has different deposit and withdrawal policies. Brokers offer various funding options, such as via credit card, PayPal, or wire transfer. Brokers often charge a fee if you want to deposit or withdraw money.
It’s always better to consider a broker that offers a range of account types. This forex.com broker review highlights the different accounts it provides, amongst its other attractive features.
With a trustworthy broker that manages the backend responsibilities, you can spend more time developing strategies and analyzing your trading actions. Devoting time to research before making a decision will help you in the long-term and allow you to focus on the right things while trading in the forex market.
What other things should you keep in mind before choosing a forex broker? Let us know in the comments below!