Three Tips For Choosing Forex Brokers
The more we live, the more we find out that we are dependent on many things besides our wits. Being smart will only get us so far, but unless we make use of systems set up for our convenience, we are setting ourselves up for failure. This is especially true in the Forex market.
The way the market works means you have to work via a Forex broker or a dealer to get your trades started and completed. You can find Forex brokers in every part of the world just as you will find currencies traded in almost every corner of the globe. However, you should consider a few points when you go out shopping for the right broker to help you with your trades.
1. Regulation and credibility
One of the most important things to consider when choosing a broker is ensuring they are licensed and authorised to provide investment services. Therefore, choose a broker registered with the Commodity Futures Trading Commission (CFTC) in the United States or the Financial Conduct Authority in the UK. This means that you have legal protection against any abusive trading practices, such as stop-loss hunting and intentional slippage and requoting as well as other types of scams. It also means that when you sign up to use their services, you will have consumer protection and protected against any internal fraud. Also, your funds are safeguarded and will remain separate from the broker’s operating funds.
When choosing a Forex broker, you should look at the types of spreads they offer. The spread is the difference between the bid and offer price of the forex pairs that you trade. Some brokers do not charge a commission on your trades. Instead, they add the spread as compensation. Your broker may also offer accounts with either fixed or variable spreads, and they can be different for types of trading accounts they offer and depend on the size of your account balance.
3. Trading Conditions
What is the broker’s margin requirement? Which means what percentage of the investment in your trades do they expect you to contribute to open a trade. You also want to know about their margin calls and stop out levels. You should also check their Rollover Policy. Do they have a triple rollover policy, and if so, which day does it occur? Plus, do they have any other requirements or conditions about you earning interest on any rollovers. Slippage can affect your profitability. Can your broker provide details of historical slippage and reports on execution speed? Slippage can occur in fast-moving markets. Also, consider what business model the broker uses. Some FX brokers are Market Makers, while others are STP/ECN brokers.
Once you have completed your research and selected a few candidates to trade forex with, it’s time to set up your demo or live trading account. With a demo account, you can open it and start trading right away. With a live account, you need to wait until your funds clear before you can begin trading. Remember to carefully read the execution policy to know how the broker executes your trades in certain conditions. If you neglect some important details, you can lose money on your first trades. Take time to understand the features and ask the brokers support agents any inquiries you have before you place your first order.