Undoubtedly, the forex market is one of the biggest markets in the entire world. Just like any other volatile market, there’s potential for good profits as well as losses if proper risk management strategies are not applied while trading in the foreign exchange market. Read More
Forex trading is a challenging endeavor for anyone without the access and assistance of a reliable forex broker. A suitable forex broker plays a vital role in enhancing trading profits in the long run. Thus, it is crucial for someone serious about their trading career to open a trading account by carefully evaluating different forex brokers. As a forex trader, you must go through many issues before you start trading with a live trading account funded with real funds. Some of such issues are the trader’s personal objectives, trading strategy, and the amount of the trading capital.
Once you have addressed such issues, it is time to pay attention to partner with a reliable forex broker who can help you fulfill your trading goals. You can also read online broker reviews to select the right broker for your trading needs. This article covers the top five considerations a trader must keep in mind while selecting a forex broker.
Fund Safety, Easy Accessibility And Regulatory Compliance
First and foremost for any trader is the security and easy access to the funds. Many con men in the forex market take a good chunk of their client’s money and just disappear. Thus, it is imperative to carefully examine the forex broker you are considering opening an account with. This is why regulatory compliance is the number one consideration when choosing a forex broker.
Forex broker regulations exist in almost all countries today; however, their standards might vary from one another considerably. Many brokers prefer to be registered with two or more regulatory bodies. Furthermore, it gives traders confidence that they can entrust the broker with their hard-earned money. All the legitimate forex brokers list the regulators they are registered with on their website; thus, verifying their license numbers on the regulator’s website is easy.
A forex broker’s second most important consideration is safety from data thefts. One must share a huge amount of personal and financial information when opening a forex account. Hence, if the broker’s data security is not so strong, it could increase the chances of hackers impeding your trading account. In dire situations, you fall prey to identity theft scams whereby the hackers misuse your personal information. Thus, before selecting any forex broker, ensure they have high-end security features such as SSL and two-factor authentication.
Type Of Trade Execution
When comparing different forex brokers, the third consideration is to check how the forex broker executes the trades. There are different business models for a forex trader to follow, each having a different way of executing trades. These are:
Dealing Desk: A DD forex broker is also called a market maker. They make the quote below or above the current market based on preference and market positioning. The market maker always takes the other side of the clients’ trades and offsets their risk with large liquidity providers. Furthermore, they make money via the bid/offer spread.
No Dealing Desk: A NDD broker is the one who offers direct access to the interbank market. NDD brokers make their commission via the market spread or a per-trade commission. Unlike the DD broker, market spreads for NDD brokers are tighter. However, they aren’t fixed and might fluctuate significantly during times of high market volatility.
The type of broker best-fitted to your trading needs will depend upon your trading strategy and the amount of trading capital. As mentioned above, a market maker takes the opposite side of the customers’ positions, leading to a conflict of interest and challenges when the trader’s positions emerge highly profitable.
Commissions And Other Costs
The fourth consideration is the cost. Trading costs significantly affect your trading returns, especially if you trade frequently. However, it is not wise to choose low-cost forex brokerage if you cannot get good customer support. Hence, other factors like trading tools, market analysis and educational materials are also important apart from cost.
Most brokers make money by spread (difference between the bid and ask price) or commission per trade. Other costs include fees charged for bank wire transfers, withdrawals and deposits and inactivity. Furthermore, some forex brokers charge clients for closing their accounts as well. It is best to read the prospective broker’s service agreement to know their commissions and charges.
Last but not least, the fifth consideration is the type of trading platforms the broker offers. An excellent trading platform is easy to use and facilitates trading by enabling traders to react quickly to the current market conditions. While some brokers offer proprietary software, many rely on standard trading platforms such as MetaTrader. Most forex brokers also offer mobile trading apps to help traders keep an eye on the forex market via smartphones.