Find the Best Forex Broker For Your Trades
Choosing a good Forex broker is just as important as making sure you have a good trading strategy in place, which means that it’s worth taking the time to do the research to find a great broker. Before we go into what a good Forex broker should offer, let’s first have a look at exactly what a broker does and why it’s so important that you take the time to choose a good one.
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What Is a Forex Broker?
A Forex broker, essentially, purchases and sells on your behalf on the “trading floor.” While the Forex market does not have a centralized exchange, like the stock market, only large traders such as financial institutions have direct access to the network where the trades are conducted. This means that the only way you can place trades is through a broker.
The Forex market, unlike other financial markets, is not regulated. However, a good Forex broker will be registered with certain government agencies, depending on the country they are based in. For example, in the United States a good broker will be registered as a Futures Commission Merchant (FCM) with the Commodity Futures Trading Commission. They will also be a member of the National Futures Association.
One thing you need to remember, despite what you might have heard before, is that your Forex broker is neither your friend nor is he out to get you. Even though they make money on any trade you place and conspiracy theorists believe that brokers trade against their clients, the reality is that they want to keep you as their client because the more trades you place, the more money they make. Therefore, they really don’t care whether you are making money or not but they prefer that you at least break even so that you will continue to place trades.
Things to Consider When Choosing a Forex Broker
There are many issues you need to consider when picking a Forex broker. However, we will look at some of the most important things that you need to consider when you choose your Forex broker.
Check the Spreads
As we have already mentioned, a broker makes money on every trade you place, whether it is a winning or a losing trade. However, you might think that you are getting a great deal when you sign up with a Forex broker who claims to offer commission-free trades. In fact, you are still paying a commission except that it is referred to as the spread, namely the difference between the bid and the ask price. So, don’t allow yourself to be drawn in by an offer that isn’t quite as good as you think it is. Make sure you do a spread comparison between the brokers you are considering before you decide which one to go with.
Customer Support Hours
Another important issue is the quality of their customer support. Do they offer customer support around the clock? Remember that Forex trading takes place around the clock from Monday to Friday since currencies are being traded in financial centers all over the world so that means that you need to be able to get in touch with your broker at all times during market hours.
Quality Customer Service
You also need to find out how effective their customer service is, which is best done by receiving a personal recommendation. Just because they are great at selling and can convince you to sign up with them doesn’t mean their customer service will be just as good.
The only real way to find out how good they are is to test them yourself but most people, once they have made a deposit, don’t want to withdraw their deposit and start all over again with a new Forex broker, a fact they rely on. That is why your best option is to sign up with a broker that has been recommended to you by someone you know.
The Forex Broker’s Trading Platform
Trading platforms tend to differ from broker to broker and you might not feel comfortable with all of them. If you can’t use their trading platform properly then you will have trouble conducting your analysis and placing your trades, making it a vital component of choosing your Forex broker.
While most brokers offer the extremely popular MetaTrader trading platform, there are still quite a few that provide only their proprietary platforms. This means that you need to test the platform before committing to a particular broker. Since most brokers offer a demo account for at least a week, this gives you the perfect opportunity to test the trading platform and decide whether or not it is for you.
Leverage and Minimum Deposit Requirements
The high level of leverage that Forex brokers offer is what attracts many people to Forex trading because it is what allows you to trade with a small capital yet control large positions. For example, with a $100 you can open a $10,000 position with a leverage of 1:100 and some brokers offer leverage up to 1:500. While this can mean a high level of profits, it can also lead to great losses, which is why you don’t want to go for too much leverage. The higher the leverage, the more money you can lose which is why it’s best that you consider this beforehand.
Some Forex brokers also allow you to open an account and start trading with as little as $25 due to the high leverage they offer. This can be extremely tempting, but the high leverage you will need to use to see even a minimal profit can clean out your account faster than you can blink. So, while it might be a good idea to start with a “mini account” to familiarize yourself with Forex trading, it isn’t a good solution for the serious trader. When you feel ready to start trading seriously, you are better off making a larger deposit and opting for less leverage, even if it means it will take longer to see a decent profit.
The Forex Broker You Should Avoid
Since the Forex market is not regulated and with the rise in popularity of online Forex trading, more and more brokers are popping up out of the woodwork and not all of them are serious companies. So, you want to avoid any Forex broker that guarantees you will make a profit, ensures that you won’t lose your deposit or promises that you will make a certain percentage in profits. This is because the only thing that is certain in the Forex market is that it is unpredictable and absolutely no one can guarantee you will make a profit or that you won’t lose your deposit.
Even the top traders can’t guarantee a definite return on your investment, so any Forex broker that makes these claims is simply trying to get you to open an account with them. After all, whether you win or lose, they still make money.
Choosing the Right Forex Broker
As you can see, choosing the perfect Forex broker involves plenty of research and quite a few factors. However, it is mandatory that you take the time to research the broker because they play an important part in the success of your Forex trading.