A Forex broker is a necessary ingredient in forex trading. Forex brokers take care of the orders, perform the transactions, offer trading platforms and all the necessary trading tools, such as charts, real time news, fundamental and technical updates, economic calendars and more. Therefore, it is important for a beginner in forex to spend enough time figuring out which forex broker is most suitable. What defines a good broker? How do you know which broker suits you best?
As the interest in forex grows exponentially, the number of available online forex brokers increase accordingly. The interaction between forex broker and a trader is unavoidable; therefore it is crucial to select a broker according to trader's preferences and general reputation.
When it comes to forex broker, there are several things a trader should pay attention to:
Regulation and Reliability
In order to figure out whether a selected forex broker is worth your trust, it might be a good idea to:
· Read broker's reviews, forum discussions and blog posts. This will give you a general perspective of the broker's reputation among other traders.
· Find out how long the broker has been around - generally forex broker with a long time activity in the industry are most reliable.
· Search the broker's site for the address. If the address and phone number are not listed - run away as fast as you can!
· Find out whether a broker is regulated. All information about regulation, location of the broker, along with financial position should be available on the broker's site. Keep in mind that only certain countries require forex brokers to be registered with regulatory bodies. Some brokers are not regulated by any authority and are basically free to do whatever they want.
· Forex market "never" sleeps. You can trade for 24 hours for almost 5 and a half days a week. Therefore, it is very important to be able to reach your forex broker for support. Check customer support performance by contacting the representatives via email, phone and online chat. Pay attention to their ability to solve problems, both technical and general. Are they eager to help? Do you understand their English? Are they fast to solve the issues in question? After you make a first deposit, is support sill available and eager to help?
Commissions and Extra Fee
No one works for free. When the broker mentions no commissions and no extra fees, it isn't really so. First of all, in most cases forex broker earns according to the spread Spread is calculated in terms of pips and pips is the difference between the rate at which a currency is bought and the price at which it can be sold at a specific time.
A broker adds more pips onto the spread that already exists on the market (usually between 1 and 4 pips). This difference goes to the broker as a fee. So, it is important to find a broker with low spread (some brokers add 8 or even more, therefore make sure to pay attention to this).
It should also be clear from the start if any extra fees are involved. For example, some brokers may charge for withdrawals, others - for account maintenance. Whatever reason, it needs to be clearly started to the trader - you. If you are not sure, contract your broker for details.
Trading platform
The best way to test a trading platform offered by the selected broker is to download the free demo version and try it out. Most reliable trading platform today is MetaTrader 4, however not every trader, especially not a beginner, understands and knows how to use it.
The alternatives to MetaTrader 4 are user-friendly platforms with more graphical interfaces. It is your responsibility to figure out how to use it and take it for a test drive, in the beginning, with demo account and later on with a small deposit.
Search for the answers to the following questions:
· Is trading platform web-based or download? The best way to understand the difference is to try out both types and see what suits you best.
· Are real-time currency exchange rate quotes available?
· Can you see account history including realized and unrealized profits and loss, margin available and any margin locked in open positions, deposit and withdrawal summary.
· Is there a free demo account available? How long can you practice? (most brokers offer demo account for a limited amount of time, let's say a month).
· What is the minimum deposit requirement? $1? $100? $500?
· Is there instant automatic execution of the orders? One click execution?
· Is free charting and technical analysis available to all account types?
· What is the difference between account types?
· What is the leverage available? Keep in mind that this thing can make you either very rich or very broke! If you are a beginner, stick to small leverage. The basic rule of forex trading is not to use more than 100:1 leverage with standard accounts (100K) and no more than 200:1 for mini accounts (10K).
Terms and Conditions
Pay attention to terms and conditions you agreeing to when opening an account with a selected broker. Each broker has different terms and conditions, which may also vary by the account type chosen. In any case, these terms have to be mentioned at the time of the account opening. If something isn't clear to you, make sure to ask before you agree.
· Term to pay close attention to include:
· Transaction costs
· Margin requirements
· Minimum trading size requirement
· Rollover fees
· Margin account interest rate
No Fairy Tales
A professional forex broker will not try to promise a "Happy Land" to a trader. It will mention the risks involved, explain the basics and offer assistance. Whenever 100% profit is mentioned - run away! Forex is not a fairy tale. There is no "get rich fast" scheme.
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