Forex Broker Guide - Choosing A Forex Broker

When choosing a Forex broker there is one simple question that you need to ask yourself: "'Will this Forex broker fulfill my needs as a currency trader."

The Forex broker that you settle on should satisfy your particular requirements as a trader. Your exact requirements will be dictated, among other things by your level of experience, the currency pairs you decide to trade and importantly the strategies that you adopt. Because no two brokers are exactly the same, it pays to compare a few before opening your live account.

Most brokers will offer a demo account facility with which you can try out their platform and service. These are made easily available and you should be able to get one up and running in only a few minutes.

Our Forex broker guide offers some key considerations that we think you should take into account when deciding on a broker to use.

Spreads

Check out the spreads that the Broker is offering for the major currency pairs. Variable spreads, while lower most of the time, can widen considerably when important economic news hits the markets. They can also rise latter in the day as liquidity drops off.

This could be an issue for your trading strategy if you are targeting a few pips profits on each trade or plan to execute a strategy later in the day. As an alternative many online Forex brokers now offer 'Fixed spreads.' These will tend to be slightly higher on average but their ‘fixed’ nature means that they remain constant no matter what the Forex market conditions.

Virtual or Demo Accounts

Having a virtual or ‘demo’ account is useful for two reasons. Firstly it allows you to get a feel for the operation of a brokers trading platform before opening up a live account. This means that you can test out the features and tools available prior to making a decision to open a live account. Secondly it is always useful to have a demo account to test out new strategies or trading systems in a live market without having to commit real capital.

Mini and Micro Trading

When you first start trading you may find that some brokers require a prohibitively high minimum trade size or capital deposit for margin. Standard accounts often use 1 lot (100,000 units of the base currency) as the smallest trading size.

Fortunately as online Forex brokerages have become more competitive, they are increasingly offering both Mini and Micro lots. 1 Mini lot is equal to 10,000 USD. This means that to control 10,000 USD you would risk only $50 with a standard leverage of 200:1. In comparison 1 Micro lot would be equal to $1,000 and you would risk only $5. This allows smaller ‘lot’ sizes and therefore the ability to balance risk while you get used to the markets.

Increasingly Forex Brokers are making fewer distinctions between their Standard Accounts and these smaller accounts. Often the same platform, features and spreads are offered to all clients.

Regulated Forex Brokers

This is worth checking as regulated Forex brokers offer your account some protection if the broker gets into financial difficulty. Most Forex Brokers tend to be regulated only in their country of jurisdiction but this does give some comfort in the event that things go wrong. Check that your Forex Broker is regulated with at least one regulatory authority in order to help safeguard your deposited trading funds

Leverage

How much or how little leverage will a broker give you? Leverage is the ratio between the total capital that is made available for trading and the actual capital that you have on your trading account. For example, a ratio of 100:1 means that your broker would lend you $100 for every $1 of your actual capital. Therefore, you would command $100,000 with an account of $1,000. The amount of leverage offered by brokers will vary. Typically it will start at 50:1 and in some cases is offered as high as 500:1!

Remember though that high leverage can increase your potential loss as well as your profit. Simply seeking out the highest leverage fx broker is not the aim of the game!

Take a look at the following example. If you used $1000 to buy GBP/USD at $1.50 and the exchange rate moved to $1.51 you would pocket $10. If you had leveraged the trade 1:100 then your profit would be $1000!

Unfortunately leverage also works in reverse (there had to be a down side!) If you don’t understand leverage then don’t use it. And even if you do, use it with caution!

Reliability

The reliability of the Trading Platform is critical. You need to ensure that the platform is both accurate and reliable, especially if you want to quickly open or close a running trade. As with any software based application you need to ensure that it works correctly in your environment. This is another reason to take advantage of demo accounts and check their operation on your own pc hardware or mobile device before opening and committing to a live account.

Funding Your Account

The majority of Forex Brokers offer accounts denominated in USD but increasingly brokers are offering accounts in JPY, EUR and GBP. More ‘exotic’ base currencies are available from some brokers. Check the accounts on offer if you prefer trading in your regional currency.

Also think about the currency that you are holding your trading deposit in. This money will hopefully be sat in your account for some time so not only will you want it to be secure, you will need to consider the currency outlook for you trading capital itself. If your local currency does not have a particularly good outlook, then you might consider holding your deposit in an alternative currency.

Finally consider how you want to fund your account. Most online Forex brokers will offer a range of deposit methods including debit and credit cards. Alternative funding methods including Pay Pal, E-gold, e-Bullion and Western Union. Standard bank wires are also now supported by many brokers.

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