Aspects to consider when choosing a broker
1.) Trading Platform:
Almost all brokers offer free demo accounts with which you can practice your trading strategies and evaluate their trading platform. The use of the appropriate platform is a key factor to be successful as a trader. This application must be easy to use and should have enough tools to properly implement the trading systems of the investor (advanced charts, technical indicators, news, trailing stops, one click dealing, PDA and mobile platform, etc). Another important factor is the speed and agility of execution of orders, especially in times of fast market movements.
2.) Credentials and regulation:
There are government agencies whose function is to regulate the operations of financial services companies such as Forex brokers. This, of course, is not a 100% guarantee that the broker is totally fair with their clients. Sometimes you can find good brokers that are no regulated and the opposite, full regulated brokers with a very poor service. However the best practice is to open a trading account with a regulated broker with credentials because usually these are more serious companies . At this point you can explore the Internet and see what other traders say about the broker you’re interested.
In the following link you can find information of the most important government agencies of the world that regulate the activity of the Forex brokers: Forex brokers regulation
3.) Broker Type
When a trader is looking for a Forex broker he has to choose between three different main types of brokers, which differ in several key aspects. The choice of a specific type of broker depends mainly on the specific needs of each trader
- Market Maker (Dealing Desk): These are the vast majority of online brokers and are used for small traders and big traders. In this case the broker usually acts as the counterpart of the trader on his trades. For this reason a market maker broker offers fixed spreads.
- NDD: Acronym for No Dealing Desk. There is no agent to execute the orders but are executed automatically. These brokers offer variable spreads.
- ECN: Acronym for “Electronic Communications Network.” These brokers operate directly connected to the market where market makers, financial institutions, big investors and banks are trading offering the best bid / offer prices. The spreads offered by these companies are variable and very low. Usually ECN brokers charge a commission for the trades instead of spread.
Currently, many Forex brokers offer accounts with different trading conditions, including accounts with ECN or Market Maker features. Thanks to this, the clients can choose the account that best suits their needs as traders.
4.) Trading Costs
When a trader analyze a broker, one of the most important aspect are the trading costs, especially since the more elevated are these, the lower the benefit that the trader can obtain logically. The costs that must be considered are basically the following:
- The rollover or swap.
It is important that a trader that is analyzing a broker must find information about the spreads it charge. For example, the trader must know the spread for each currency pair that he trade regularly and if the spread is fixed or variable. Also, the investor should know about the slippage that is expected in normal conditions and fast movements conditions in the market. The vast majority of brokers have really low spreads, but it is still a factor to consider.
6.) Speed of execution and stability of the company servers
Financial markets such as Forex ares characterized by periods of rapid movement of high volatility. It is therefore important to have an account with a broker whose servers are highly stable (servers that almost never fall off) which allow the trading platform make fast and effective execution of orders. Thus, the broker must ensure that the trader can open a position in the market at the price that he/she wants to avoid what is known as slippage and requotes, which can cause that the trader enters late in the market and sometimes at an inconvenient price, leaving him/her it in a compromised position. With some bad brokers under extreme market conditions the orders are not even executed.
7.) Quality of customer service
A good broker should have an adequate customer service that operates 24 hours a day, at least Monday through Friday. Typically, brokers allow their customers to contact their support staff via email, telephone and through a live chat on the same website of the company. The customer service of any broker should be able to answer any questions the customer may have regarding the services provided by it. It also must respond promptly and not leave the customer waiting days or weeks for a response.
8.) Bonuses offered by the broker
Nowadays many brokers offer bonuses to customers who open a trading account and deposit funds into it. These bonuses are provided in the form of money deposited in the trading account of the client who can use it to invest in the market. The amount of these bonuses tends to vary, but generally is 10% to 50% on the money deposited in the account by the client. For example, let´s suppose that a trader deposited $5000 with an X broker which offers a bonus of 10%. In this case, the trader receives a bonus of $500 deposited in their account.
The following is a list of Forex brokers offers:
9.) Leverage and margin requirements of the broker
At this point the trader must be careful, because a margin requirement can be very good if our trades develop as we want, but otherwise we can suffer large losses in which case we would have had a higher margin requirement. Therefore the issue of leverage and the margin should not be taken lightly and the trader must carefully consider what is best for his strategy. Usually, most brokers offers a margin requirement from 25%. It is best to use a medium level margin requirement that allows an adequate risk management. The best thing for a novice trader is to use the traditional leverage of 1:100 or even less.