Home > Forex brokers > Features > How to choose a broker?

Factors of Forex Broker Choice

One of the basic factors of your success in the Forex market is a correct broker choice, or, in other words, the companies in which you will open the bill and through which will spend currency transactions. But how to choose the right Forex Broker?

If you are new to the forex market, it is recommended that you find a broker to help you with your trading strategy and transactions. There is a wide variety of brokers available to you, so be prepared to ask some main questions. These include:

What is your spread? - (Hint: The lower the spread the more money you make!)
What are your credentials? - (Hint: There are certain affiliations you should look for.)
What tools are available to help me learn more? - (Hint: Not all broker firms are created equal. Find out who offers the best resources and information to help you make the smartest trading decisions.)
What is your leverage? - (Hint: This is the determining factor on how much money you are able to make with each investment.)

The correct broker choice will help, both to increase capitals, and to save weight of nervous cells. Now, there are companies who render broker services. All of them can be divided into two basic categories:

dealing centers
investment banks

There will also be a list of key parameters, which are fundamental when choosing a broker, listed in order from the most important down to the most insignificant.

The sum of your starting capital

The basic factor in broker choice is the size of your starting capital. The overwhelming majority of broker companies demand a deposit over $2000. These widespread companies begin to work with $10000. This does not mean a greater sum of the enclosed will get you the best conditions, absolute guarantees of duly payments, or the safety of your earnings. All of these benefits will depend on the concrete service provider. There are offers to begin forex market trading with $1000 or less (so-called mini-forex market) when your position is not deduced on the market directly but only by means of summation of positions of several participants. If you adhere to the belief that it is necessary to start working only with solid banks, then the size of your bill cannot be less than $50000, and more often $100000.

Wide range of leverage options

Leverage is necessary in forex because the price deviations (the sources of profit) are merely fractions of a cent. Leverage expressed as a ratio between total capital available to actual capital, is the amount of money a broker will lend you for trading. For example, a ratio of 100:1 means your broker would lend you $100 for every $1 of actual capital. Many brokerages offer as much as 250:1. Remember, lower leverage means lower risk of a margin call, but also lower bang for your buck (and vice-versa). Note: Your broker offers high leverage if you have limited capital. If capital is not a problem, then work with any broker with a wide variety of leverage options. A variety of options lets you vary the amount of risk. The optimum quantity of the enclosed means the beginning trader has between $2,000 and $10000.

Broker's reputation

Before making an investment, it is necessary to collect full information about your future broker. Pay attention to how long the company has existed within the market of services as well as the broker license. It is obvious, that more experienced brokers are more preferable than inexperienced ones because of their record of stability and reliability. However, sometimes the new companies offer the most comfortable operating conditions. Ask familiar Forex market traders or visit forums on the Internet, devoted to currency Forex market trading. Usually facts of swindle are known within the forex trader's environment. Certainly, it is possible to come across an anti-advertising brokerage. However, if the name of your potential broker often appears in various blacklists, then it is necessary to be concerned and look into such facts. Choose those brokers about whom it will be possible to collect as many as possible positive responses.

Unlike equity brokers, forex brokers are usually tied to large banks or lending institutions because of the large amounts of capital required (leverage they need to provide). In addition, forex brokers should be registered with the Futures Commission Merchant (FCM) and regulated by the Commodity Futures Trading Commission (CFTC). You can find all of this information, as well as, other financial information and statistics about a forex brokerage on its website or from the website of its parent company. Bottom line: Make sure a reliable institution backs your broker!

Useful facilities

Various programs of a technical analysis, trading platform add-ons, free-of-charge quotes, good and profitable forex affiliate programs and other services will facilitate your life, especially, while you are newbie. If there is a choice between two equivalent broker firms - you will know what to do.

Operating time

The preference should be given to companies who open at night on Monday and finish the job more close to midnight on Friday. Imagine that you leave a profitable position on target with the purpose to earn more. You set up the protective order so that it will fail to earn a little and go rest while hoping to increase the capital. It is possible that at night on Monday there was the unexpected event promoting a sharp jump of a forex rate against your position. The broker, who comes on the job at nine in the mornings, will execute the protective order under that price which he will see on the monitor. However, because of a job break, you end up leaving a very risky position opened on the broker's days off.

Account Types

Many brokers offer two or more types of accounts. The smallest account is known as a mini account and requires you to trade with a minimum of, say, $250, offering a high amount of leverage (which you need in order to make money with so little starting capital). The standard account lets you trade at a variety of different leverages, but it requires a minimum initial capital of $2000. Finally, premium accounts, which often require significant amounts of capital, let you use different amounts of leverage and often offer additional tools and services.

Note: Make sure the broker you choose has the right leverage, tools, and services relative to your sum of capital.

Commission fee

By granting services in the Forex market, the broker earns only a so-called spread, which is the difference between purchase price and sale price of currency. Do not confuse the Forex market with an equity market. An equity market is where each transaction commission fee is kept from you. An overwhelming majority of brokers in the forex market earns only a spread. Therefore, if the bank or dealing center at which any additional commission is provided, it will get to you and safely pass to search other variants. It is very important to remember that any commission fee will negatively affect a status of your bill. Additionally, do not forget that everywhere there is a commission for carrying a position in a day. This is known as a swap. However, a swap can be not only negative, but also positive. The status of your deposit depends on the commission fee.

Spread

A spread is the basic earnings of the broker. There are two versions of brokers: one with the fixed spread and the other one with the floating spread. The fixed spread is characterized by a constant difference between a forex rate of purchase and sale without dependence on a market situation. Many dealing centers limit themselves by practicing a rule of the floating spread. This rule states that the steady spread is saved in the quiet market. However, practically every day there is some moments of sharp fluctuation of the prices in which a spread's enlargement on 50 (!) pips not only creates inconveniences, but it can appear rather pernicious for the deposit. Nonetheless, the floating spread has advantages. For example, in the quiet market the floating spread can decrease by one or two pips. Whereas the fixed spread remains the same in any situation.

Low spreads are the difference between the price at which a currency can be purchased and the price at which it can be sold at any given point in time. This difference is how forex brokers make money because they do not charge a commission. In comparing brokers, you will find that the difference in spreads in forex is as great as the difference in commissions in the stock arena. Note: Lower spreads save you money!

Various additional restrictions

It would be desirable to warn a beginning Forex trader that many broker firms practice additional restrictions on conducting forex market trading. The most widespread restriction is a position about obligatory quantity of transactions for a set time interval (e.g. a month). Pay close attention to the conclusion of the contract, and define what restrictions are obviously unacceptable to you.

Technical support

Without fail there should be a constant round-the-clock communication with the Forex trader; it is desirable not only by means of the electronic terminal, but by means of also ordinary telephone. Technical support, in the majority of the broker's companies, works from 9 am to 6 pm. Therefore, it is difficult to do a test job of the communication before opening the bill, unfortunately.

Additional service for clients

Various programs of a technical analysis, reception of free-of-charge quotations and news will essentially facilitate your life, especially, during the first months of trading. Pay attention to this item if there is a choice before you between two equivalent broker firms.

Software convenience

Certainly, it is possible to get used to any software. However, before the conclusion of the contract, it is recommended to establish a demo account. The friendly and clear interface will promote pleasant jobs that start during the first days.

Forex brokers offer many different trading platforms for their clients. These trading platforms often feature real-time charts, technical analysis tools, real-time news and data, and even support for trading systems (i.e. extensive tools and research). Before committing to any broker, be sure to request free trials to test different trading platforms and any offered tools and research. Brokers usually also provide technical and fundamental commentaries, economic calendars, etc. Note: Find a broker who will give you what you need to succeed!

Avoid the following things:

Sniping or Hunting

Prematurely buying or selling near preset points (i.e. sniping or hunting) are shady acts committed by forex brokers to increase their profits. Obviously, no broker admits to committing these acts, but a notion that a broker has practiced sniping or hunting is commonly believed to be true. Unfortunately, the only way to determine which brokers do this and which brokers do not is to talk to fellow traders.

Note: Talk and discuss on forums to find out who is an honest broker.

Strict Margin Rules

When you are trading with borrowed money, your broker has a say in how much risk you take. As such, your broker can buy or sell at his discretion, which can be a bad thing for you. Let's say you have a margin account and your position takes a dive before rebounding to all-time highs. Even if you have enough cash to cover it, some brokers will liquidate your position on a margin call at that low. This action on their part can cost you dearly.

The dream of many Forex traders is to work with the ideal broker who meets all set forth above requirements. However, it has been researched that in this practice, the ideal broker does not exist. In addition, it is necessary to be reconciled with any lacks.