Friday, 14 June 2013

How to select a Forex Broker

Most traders who trade forex use a broker. A Forex broker needs to be associated with a financial institution, such as a bank in order to provide funds for margin trading. Picking the right forex broker for you will take some work on your part. There are brokers who charge flat fee and some that charge commissions and there also some brokers who does not charge any of these but instead they charge only spreads (the difference between ask and bid price).

Choosing a forex broker is a personal decision. First, you need to make a list of what you want from a broker. If you are thinking of trading online, you could choose several online brokers and contact their help desks. Seeing how quickly they respond to your questions could be useful in how they will respond to their customer’s needs. If you don't get a speedy reply and a satisfactory answer to your question you certainly wouldn't want to trust them with your business. Just be aware that as in other types of businesses, pre sales service might be better than after sales service.
Don't forget to ask about minimum account balances and interest payments on account balances. Make sure that your funds will be secured.

There are so many factors to consider, here are some of the major ones:


·         Where is the forex broker regulated?

 Is the broker regulated at all? Some aren't. Some will claim to be    "self-regulated." That means they are unregulated, but they aren’t honest enough to admit it. There are a few unregulated brokers that aren't too badly rated. The problem with this is how do you know they won't go bad later? Regulation doesn't guarantee that a broker is a good broker, but at least gives you some recourse if things go terribly wrong. Also, remember that some countries have better regulations than others.

·         Download online Demo Account

Before you choose an online broker, you must download their online    demo account. Before setting up an account with a Forex broker, you will need to do further investigation. How quickly will these brokers execute your buy/sell orders? What is their policy on slippage? What are the transaction fees? What is the spread, fixed or variable? What are the margin requirements and how are they calculated? Does the margin change with currency traded? Is it the same for mini accounts and standard accounts?

·         Does the broker permits your trading style?

This is very important if you plan to news trade or scalp. Some brokers might suspend you. Others will cancel your winning trades (but never your losing trades). Certain extremely unethical brokers will decide that your trading style has caused them "damages" and will confiscate as much of your account as they feel like.

·         Do they offer swap free Islamic Accounts?

Followers of the Islamic faith are forbidden to charge or pay interest. People who want to hedge a trade with a negative swap pair also would like to avoid paying interest. Whether for religious or hedging reasons, be careful - many "swap free” accounts have a daily fee that can cost significantly more than you would pay for swap interest.

·         How are the swap rates?

It's normal to charge a little more on negative swap than what a trader gets paid for positive swap, but some brokers use this as another way to squeeze even more money from hard working traders. Some brokers charge negative swap both ways on some or even all pairs. If you rarely leave trades open for very long and can avoid the time that swap is charged, this won't affect you. For those who trade specifically to collect interest, this could be one of the most important factors in picking a broker.

·         How you can move your funds in and out of your account?

Some brokers only do wire transfers and charge some pretty high fees for the privilege. If you plan to move several thousand dollars every time, this isn't too bad. If you want to withdraw $50 or $100 at a time, then a $25 or more wire transfer fee really cuts into profits. Look for a broker with ways to fund and withdraw that are acceptable to you. Don't wait until you've made some money and then find out that it's difficult and expensive to get your profits. When you first fund your account, put a little extra in and test the withdrawal process with the extra money just to be sure you can get money back out.

Summary

There is no single perfect forex broker for everyone. If everyone followed a broker selection system like this, then the worst brokerages would quickly go out of business, and the rest would soon realize that they need to work very hard to earn and keep the respect and business of forex traders.

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