How to Choose a Forex Broker

How to Choose a Forex Broker

Due to lack of a central marketplace for the forex market, traders need to select a broker that will help them conduct their trading activity. The number of brokers has drastically shot up over the few years and choosing the right one requires a well calculated move. Here is a simple guide on how to choose a forex broker.

Step 1: Do your research

You need to first have a list of what you require from a broker and what you may want but can do without. You should ask yourself a few hard questions and here is a list of some of the things you need to look for in the process of identifying a right broker.

i. Regulatory compliance. You should always check the broker’s regulation status before opening a trade account. If for example a trader is headquartered in Europe then he/she should be registered with the relevant regulatory body there. Traders are advised not to trade with non-regulated brokers since such brokers are the source of Forex trading scams. Trading with a non-regulated broker leaves you with little if any legal protection from fraud.

ii. Trading platform. This is the investor’s portal to the markets. Traders ought to make sure that the trading platform is visually pleasing, easy to use, there is ease of entry and exit of trades and a variety of technical analysis tools. The trading platform needs to be user friendly and intuitive.

iii. Broker types and their commissions or spreads. There are two main types of brokers that one can deal with when trading forex. The first model is the dealing desk while the second one is the non-dealing desk broker. Brokers make money through commissions and spreads. A broker that uses commissions will most likely charge a specified percentage of the spread. Other brokers will however charge no commissions but instead make money with wider spreads.

iv. Leverage offered. Leverage is a loan that is offered to margin account holders by their brokers. Leverage works in the traders favor since a potential for profit is greatly enhanced. Leverage should always be used with caution.

Step 2: Compare brokers

Once you come up with a list of what you require from a broker, comparing a few that you have rated highly is the next step. There are broker comparison tables out there but getting one with all the features you wanted can be pretty hard. Find several brokerages that meet most if not all of your requirements and compare them. I did a review on Plus500 and Avatrade.

Step 3: Open demo accounts

After identifying the more promising brokers, open demo accounts with them and get to know their trading platforms. Demo accounts do not perform exactly the same way as live accounts but will help you familiarize with the various trading platforms offered. There may be small differences in slippage and speed of execution. Trading on a demo is a wonderful way of knowing how good the broker’s customer service is. If you feel you are good to go, you can then move on to a live account and start off small to test the waters to see if the broker will suit your trading needs.

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