There are plenty of forex brokers to choose from. Type in “forex brokers” in the Google Search Box and you will see a whole lot of them coming up on your screen. Almost all the results that appear detail good brokers. Nevertheless you must have your own set of guidelines in selecting a forex broker. Here are a few thumb rules in forex broker selection.
It is important to select a broker who has explicitly stated in the website the whereabouts of the Company’s headquarters. Clarity on this issue is important. Avoid brokers with an offshore dispensation because you might find it difficult to withdraw money from your accounts with them.
Your broker must be registered with the proper regulatory authority in the country of its origin. This discounts the possibility of your dealing with fly by night operators. If the broker is situated in the UK, it should be registered with the FSA, and if in the United States it should be registered under FCM. Having the regulatory approvals is a basic requirement that you should expect from any good broker. Your trading capital will be far safer if your broker has proper regulatory credentials.
What type of account does your broker offer you? That’s a pertinent question you should be asking yourself while selecting a forex broker. If a broker offers you only a standard account with a minimum deposit of $2000, it’s of no use to you especially if you don’t have the money to fund that account. In that case you should be looking for a broker who could offer you a mini-account with say $300 or $500. Some brokers also offer you even a micro-account which requires just $10 or $25. So flexibility in the type of accounts offered is what you should be looking for. A broker who could offer you the choice of different types of accounts is naturally the one you should be going in for. Start small, get comfortable with the volume of trading and then proceed to get yourself a standard accounts.
If a broker offers you a leverage of 100:1 or 400:1 it simply means the broker will lend you $100 for every $1 of your own capital and $400 for every $1 of your capital respectively. In other words leverage is the money your broker is willing to lend for your trading activity. Leverage is inevitable as price deviation in forex currencies are generally set at fraction of a cent. Choose a broker that allows you to choose the leverage that is appropriate for your trading needs. In other words a broker who offers flexible margin is probably the one you should be going in for. In that case you could decide on the leverage that best suits your trading style.
While selecting the type of accounts you should be looking at the spreads too. Don’t think that all forex brokers offer the same spread. It varies from broker to broker and also depends on market conditions.
When the markets are normal and stable your broker may offer a particular spread that could widen when the markets get volatile. So go in for a broker that offers you a fixed spread. This is advantageous if you were a day trader. Forex is certainly not transacted through a central exchange market and so each broker has its own policy on spreads. If you were a day trader spreads should be a point you should be looking at carefully. But if you were planning to keep your forex positions open for a long term trade then a few more points in spreads will not matter much.
Now we have got to make sure that the trading platform is the right one for you. So we come to the vital aspect of trading itself, and that’s done through the trading platform. Obviously this is where you are going to be making and executing forex trades. How do you decide on how good or bad a trading platform is? You can do that by trying out the demo first and then asking the broker if it really corresponds with the real version. If the demo does correspond to the real account version then it means what you see in the demo is as good as what you would get in the real version.
Next you got to check up a few points about the platform itself. Firstly how quick is your broker’s order execution system? For example in some platforms when you ask for a buy or sell order to be transacted at a particular price the platform console displays something like “the price has changed now” and so you got to agree to another price. This means you have got to select another price and go over the whole process once again. Sometimes you may have to do it several times before you actually open a trade. So entering an order becomes a cumbersome process. Therefore avoid platforms that don’t have speed in opening a trade.
Next is to make sure that the platform offers you an automatic order execution process. That means that once you set the “limit” price or a “stop” price the trade should really close at that price.
In the final analysis the choice of a trading platform depends on what sort of platform you are comfortable with. Some platforms offer a dealing desk option, but this may not suit a newcomer to forex trade.
Forex is a 24-hour market 5 days a week. So you must select a broker who is accessible to you at all times during this period. You must specifically note down the telephone numbers of the broker. What if your PC crashes or internet lines become inaccessible? It may be that you may want to close a trade at that time and unless your broker has support desk with working telephone lines, it would be really difficult. Most brokers have email and online chatting facility for sure. But that’s just not enough. Telephone access to support desk is equally important. Check if the telephone access facility actually works. If the broker has multilingual support services its simply great. Fluctuations in forex trading can happen very quickly and therefore having the proper support function is extremely vital.
Assume that you have selected a forex broker on the basis of tips provided in this article. Now the key point that arises is, are you comfortable trading with this broker? Does this broker suit your style of trading? For example if you were a day trader relying exclusively on technical’s, then do you find your broker’s charting and technical analysis sufficient to execute profitable trades? Or if you were a trader relying more on fundamental analysis, does your broker provide you with “breaking news” on vital economic data releases. This could mean the difference between making profits and losses in forex trading.
Remember that the decision to execute a forex trade is your own unique decision. The accuracy of that decision depends on the inputs provided by your broker. Therefore choose a broker that suits your trading style but who nevertheless is within the guidelines stated in this article.