An essential ingredient that you must have when starting foreign exchange trading online is an account with a Forex trading broker. The forex trading broker is your connection to the markets and will provide you with the essential coverage that will allow you to trade on margin.
The question is how do you select the best Forex brokers? There are at least 7 criteria points that need to be taken into account when deciding which is the best place to buy a Forex currency trading broker.
1. dependent
This works on multiple levels. You need a broker that you can trust to be reliable and not suddenly disappear like a puff of Internet smoke taking all your hard earned money with it. The forex market is surprisingly devoid of regulation, so there are a plethora of Forex brokers to choose from, and as with many things in life, some Forex brokers are more honest than others.
The first step is to check the reliability of the forex trading broker and confirm that your online Forex broker is regulated. In the US, this means that you want a Forex trading broker that has a current registration with the Commodity Futures Trading Commission (CFTC) and also with the National Futures Association (NFA).
Look for a Forex currency trading broker with an impeccable record regarding any complaints filed against them on the National Futures Association website. Other countries have their own regulatory bodies, for example the UK Financial Services Authority performs the same function.
Another consideration is whether the online Forex broker’s trading platform is trustworthy. Forex trading platform is the financial software that will connect you to the currency markets whenever you want to trade. If the online Forex trading platform is often offline, it will cause you some major problems. For example, you might miss the opportunity to open or close a trade at the optimal time.
It would be best to check a number of online Forex trading forums for feedback from individual users on the amount of downtime they have experienced. Remember it’s like with all online forums – don’t listen to the loudest voice as they may have a vested interest in recommending or not recommending who they think are the best Forex brokers.
2. Services provided by the best Forex brokers
Forex markets trade for a full 24 hours every day, from Sunday night through Friday afternoon Eastern Standard Time. Check that your Forex broker’s trading platform is available during this time. The best trading platforms of Forex brokers will be available and they will also offer 24-hour customer support on Forex trading days.
Check that they cover the seven major currencies which are USD, JPY, CAD, AUD, CHF, EUR and GBP, no doubt the best Forex brokers will.
The best Forex brokers will offer you a minimum of the following essential tools, which are instant execution of your Forex trade at the displayed price, technical analysis charts, and financial trading charts. Most will also offer a training program to teach the basics of using the tools.
3. Forex broker costs
Online Forex brokers do not charge commissions to their clients, so the way they earn their income is from the difference in Forex trading margin. The Forex spread is the difference between the bid and ask prices in any of the currency pairs. Forex trading margin is usually any margin between 1 pip and sometimes even less than around 3 pips; this will depend on the terms of service of the online Forex brokers and the currency pair being traded.
The part of the pie that gets the spread can make the difference between making a profit or a loss in your Forex trading account. This will affect both the immediate term and the longer term, so you will need to carefully consider at what level the spread will be calculated. If you can decide which pairs you are likely to trade more often, the spread on those pairs will be more important to you than on others. For example, I prefer the USD/GBP trading pair, which is known as a cable.
Beware of special short-term marketing ploys, such as lower Forex trading margin special offers that may not last long once you have committed your funds.
You should consider how much is the minimum amount of capital you can invest to open a Forex trading account. Good advice given to new traders is to start small, which means looking for a Forex broker that will allow you to open an account with a minimum of $250 or hopefully less.
4. Margins, also known as Deposits
Margins are a variable that changes from Forex broker to Forex broker. A lower margin requirement means giving you higher leverage, and higher leverage can give you the ability to generate larger profits or losses from a fund of the same size. Margins allow you to expand the opportunity to earn more money
5. Trade Size also known as Lot Size
The size of the trade varies from one broker to another. Generally, 100,000 trading units of currency is considered a standard lot, 10,000 trading units is a mini lot, and 1,000 trading units is a micro lot. Some brokers also offer lot fractions, giving you more power to set your own lot size. This could be perceived as a bonus or just an added complication, depending on your point of view.
There are other matters to consider, including interest paid on the Forex margin account, rollover charges when trades continue through the next trading day, and any other FX trading policies the broker may have that could affect the commerciality of your Forex trading account. These are the main points that you need to consider when choosing the best Forex broker.
6. Customer Service
This is very important, especially when you have just started using a Forex trading platform. As with all new things, there will inevitably be teething problems and you want to be able to talk or email someone and get an instant response. The best Forex brokers will provide this service.
7. Forex Exit Strategy
There will come a time when you want to realize some of the winnings you have made and be able to withdraw your money quickly and easily. Make sure you can get your money in a couple of days as some online Forex brokers insist on a 14 day delay which is totally unnecessary.