It could be that you have suddenly found you have time on your hands and money to spend as the world has shut down due to lockdowns. It could be that you simply have spare cash, and you want to invest it wisely. As such, you’re probably thinking that forex trading is a good idea. And it is.
A mission-critical aspect of forex trading is to use a good broker. This can be the difference between easy transactions, low fees, an all-in-all easy process, and a nightmare where you miss opportunities due to the broker not being up to speed.
With this in mind, let’s look at the important aspects to look for in choosing good forex brokers for your trades.
Transaction Fees
Forex trading, with its complexities has different kind of transaction fees depending on what you want to do. It is more complex than, say an online money platform such as PayPal. The reason for the difference is due to the different options available to you for trading. No matter what option you choose, ensure you understand the fees involved to avoid nasty surprises.
Here is a snapshot of what is on offer:
- Leverage and Margin– Here, margin account holders are offered Leverage, a loan, against their deposited monies. Different brokers offer different Leverage ratios. For example, some offer 50:1, some as much as 200:1. The advantage to you is that if you have a relatively small deposit you have the potential to make greater profits as Leverage provides more funds to trade.
Using Leverage and Margin, winning yields greater profits, but losses can quickly wipe out your capital. - Commissions and Spreads– It is not unusual for brokers to charge a percentage on spreads, which is the difference between the bid and ask price on a forex pair. Others use a different policy by charging a fixed price measured in pips, the minimum unit of a price change in forex. Sometimes, the pip transaction fee may vary depending on market volatility.
Say you have a 3 pip transaction fee on a currency pair of EUR/USD quote of 1.2940-1.2943, you’ll buy at 1.2943 but lose the three pips making it harder to profit from your trade. Like Leverage, you need to ensure you understand the Commission and Spread offered by the broker before you start using it to trade. - Minimum Deposit– If you’re trading on a budget, you’ll need a broker that accepts a low minimum deposit. Some allow you to trade with as little as $50; others have stricter requirements. If you’re on a low budget and plan to use Leverage, ensure you familiarize yourself thoroughly with the fees and identify what you can lose.
Compliance and Security
Reputable forex brokers are regulated by the associations they belong to. Ensure that any broker you use is a member of the following:
- National Futures Association (NFA)– A self-regulatory body that protects develops the rules and frameworks protecting traders, investors, and the market’s integrity.
- S. Commodity Futures Trading Commission (CFTC)– An independent government agency that protects market users and the public from fraud and manipulation where forex is concerned. Your broker should be registered with the CFTC, as either a Future Commission Merchant or Retail Foreign Exchange Dealer.
These organizations are there to protect you. Ensure your broker is reputable. For guidance, see Topbrokers.com to help you make the right decision.
Pay extra care to this aspect as a professional-looking site does not guarantee membership to the relevant organizations.
Currency Pairs
Although surprising, not all brokers offer all currency pairs. You’ll find that some specialize in some pairs, although trading the majors should be a feature to all brokers. Spend some time seeing what’s available before you commit to a broker. You don’t want to miss out on a potentially good investment because they do not offer the right currency pair.
The Trading Platform
This is your gateway to the markets, and the best forex trading platforms should be easy to use, informative, aesthetically pleasing and crucially have a good variety of analytical tools. When assessing platforms, ensure trades can be entered into and exited with ease. When assessing the last point, ensure that buy and sell buttons are clear and, ideally, have some kind of panic button that closes all open positions. A poorly designed platform will cost you money.
Customer Service
Ideally, customer service will involve talking to a real human being rather than a time-consuming bot or email exchange. Time is money in forex circles, and you don’t want to be spending valuable trading time trying to fix a problem.
The best way to assess this aspect is to give them a call. Ask them about Leverage and regulations and see if the person on the other end of the line can give you concise, accurate information. If they can’t, it is probably a good idea to find another broker.
Broker choice is important. Make sure you get it right.