Once you’ve gained the necessary knowledge and tested your skills on a forex simulator , it’s time to earn real money, right? If so, you’ll need a reliable broker to invest in. Find out here, how to choose one.
1. Broker’s Regulation
If you suspect an online broker is shady, run far away. Do not be seduced by offers that seem too good to be true, as these are typically there to lure in unsuspecting new traders into giving up financial information or hiding other large fees. Thus governments set regulatory rules that must be followed by brokers. Some strong regulators to look out for are:
- The U.S. Commodity Futures Trading Commission (CFTC)
- The Cyprus Securities and Exchange Commission (Cysec)
- Markets in Financial Directive of Europe (MiFID)
- The National Futures Association (NFA)
- The Financial Conduct Authority of the UK (FCA)
Golden rule: The more regulations a broker has, the better for you.
2. Trading Platform
The trading platform is your portal to forex markets. Platforms that best forex brokers use are easy to navigate, intuitive to use and have good research tools for you to use. A well designed platform will make it easy to enter and exit trades and offer a strong user experience by having no delays. Opening a demo account is the best way to “road test” trading platforms.
3. Spreads And Commissions
With cost competition brought about by technology, spreads and commission costs have fallen from tens of thousands of dollars to much smaller amounts.
- Spread based costs – allow brokers to make money from the difference between the bid and the ask price of a currency pair. The average spread for a major currency pair like the EUR/USD is 2 – 3 pips.
- Commission based costs – on the other hand, allow brokers to make money per trade. For example, a broker may charge a fee of $0.08 on a 1,000 lot size, rising to $80 for a 100,000 lot. These types of costs typically require higher deposits than spread based cost structures.
Think about a trade that opens and closes with an amount of $200, with leverage of 1:50. A spread based scenario would cost the trader $3, if the spread was 3 pips. On the other hand, a commission based scenario based on the costs above would cost the trader $1.42.
4. Account Types And Leverage
Most new retail traders do not typically want to deposit huge amounts of money at first. Recognizing this, most brokers will offer mini and micro lot trading accounts to suit budgets of all sizes. Minimum deposits can be as low as $50, while others can be as high as $10,000. Maximum leverages vary from 1:50 in the United States to 1:200 in Europe. If you are offered leverage greater than this, be very cautious about the broker.
5. Customer Service
Good customer service is worth it’s weight in gold. There are two main things to look for. The first is direct online chat functionality, as this is often the best way to resolve problems quickly. The other major thing to look for is the ability to withdraw funds quickly and reliably. If you have a demo account, you can test the customer support by asking a question and seeing how long it takes them to respond.