Forex broker choice: factors

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.

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

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.

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Written by: Natali Ya

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