Tackled here are the various considerations for one to choose a reliable Forex broker.
The market is replete with Forex brokers that a novice trader can choose from. The Forex trading industry is highly competitive as there are many vying for new customers.
The Forex broker who has a handsome marketing budget would be able to herd a lot of new business. However, while having a bigger budget does give the broker an advantage, it doesn’t necessarily mean that it is the best entity to make trades with.
Researching through reading material on the web and consulting with the trading community would be a good preliminary step to familiarize yourself with the trading industry. This would permit not only opinion but will also build your confidence in actually entering the trading industry. As such, it would not be such a strange thing for a novice trader to employ the help of multiple brokers throughout their career in trading.
So how does one choose a good Forex broker?
Getting a Forex brokerage company depends on your preferences and requirements. As such, what will be detailed here is more general than specific.
Reputation is Big Advantage
Having a good reputation as a brokerage company may be a deal-maker. As good things are already said within the community you, the novice trader, would have assurance should you choose one of positive reputation.
A good indicator, apart from good reviews, is if the broker is already licensed and regulated by an an-equally respected authority.
Layers of protection offered to investors depend on the traders’ and brokers’ country of operation.
For instance, some jurisdictions mandate an investor compensation fund. This protects investor’s funds and at the same time provides insurance of up to a certain amount if the Forex broker files for bankruptcy.
On the other hand, all Forex brokers must keep client funds in a separate account. This means that your money is protected from being spent on their day to day operations.
As this is the case, even if the broker ends up being bankrupt, the client’s funds would still be rendered back to the original funding source.
Check for The Broker’s License
More often than not, a Forex broker’s license number and its regulator can already be found in its website’s footer. Some brokers’ websites may also specify what countries’ residents are not allowed to open an account under them.
There also some Forex brokers who have numerous licenses coming from multiple jurisdictions.
For trusted reviews, Trust Pilot is an independent review site that novice traders can consult with.
Also, a point of consideration is the brokerage company’s year of founding. This is essential given that their tenure might be a sound gauge for the company’s experience and wisdom. This may also determine if they would continue to exist in the coming years.
Spreads and Transaction Fees
Spreads and transaction fees should be tight and considerably low. This would strongly suggest lower costs in trading.
Of course, spreads are different for brokers, currency pairs, and asset classes. The broker’s site should be transparent regarding such. So before opening an account, it would do you well to check the trading conditions or give trading a try through a demo account.
Overnight Swaps and Roll Over Fees
Swaps are subject to change following the economic policies of the central bank.
The Forex broker does not have full control of these.
Swaps, on the other hand, varies. However, depending on the currency pairs that you choose to trade, those who use the MT4, MT5, and cTrader platforms usually debit or credit your deal. For example, there are those brokers who will only perform debits or charge a rollover fee when you choose to trade on the platform they use.
Execution Speeds & Slippage
Most brokers do execute your deals speedily. While this is the case, when you buy or sell amidst fast-moving markets, it is recommendable that your transaction would be filled with or within range of the quoted price.
Negative Balance Protection
Losing more than your deposit or balance is not a rarity in trading.
As such, there are Forex brokers that protect a negative balance. For example, some EU regulated brokers already offer this.
Another way by which a negative balance would be avoided is not to trade with insufficient capital or excessive leverage.
How Much Leverage is Allowed
It must be noted that leverage of high amounts is risky as your investment becomes susceptible to getting lost faster.
However, there are also some advantages. Using high leverages allows for augmenting potential profits. If capital preservation is in your cards, leverages might prove insignificant.
Restrictions on leverage may also depend on the jurisdiction of the broker.
Forex brokers have already expanded the product types that they offer. They can also trade commodities, indices, stock CFDs, and cryptocurrencies.
The more currency pairs that the broker offers, the more lucrative trading endeavors would be from the trader’s end.
Your trading needs dictate which trading platform you should employ.
At the moment, the most widely-used trading platform is MT4.
The trading platform was developed by MetaQuotes which also created MT5, more than an update, and it is a niche-specific platform.
Another viable option is the cTrader platform developed by Spotware. It is user-friendly and can easily be accessible.
Deposit and Withdrawal Options
Forex brokers who hold the interests of their users allow the use of credit and debit cards, bank transfer, and e-wallets such as PayPal, Skrill, or Neteller.
There are instances that the brokerage company will vouch for credit or debit card processing fees. Banks, on the other hand, usually charge for transactions.