Forex trading is now a common profession worldwide. When it comes to forex trading, you need to choose a forex broker that meets your expectations.
Rules, commissions, platforms, minimum and account fees are just a few of the factors to consider when selecting a forex and CFD broker on the internet that you need to consider when choosing a broker.
The foreign exchange market is the largest financial market in the world, with sales of more than $ 4 trillion a day. Despite its enormous size, this market does not have a central stock exchange where traders can settle their transactions.
Instead, forex traders must conduct their trading activities through an intermediary, the forex broker. This shows the importance of the role of the broker in the negotiation process.
When it comes to choosing a regulated broker, traders literally have thousands of forex brokers to choose from on the internet. The real question, however, is how you can be sure that the broker you choose will suit your business needs.
To help you choose your broker, we've created a guide with a list of key factors to consider when choosing a broker.
When selecting a broker, first check whether it is regulated by a competent regulator (to learn more about the regulation of Forex and CFD brokers).
When you do business with a regulated dealer, you can be confident that it will meet the operational standards set by the regulator. Some of these standard regulatory requirements include adequate capitalization and separate accounts to protect client funds.
In addition, the regulation protects the fund in the event of insolvency of the company and ensures that the broker as a financial service provider adheres to strict standards.
The countries with financial supervisory authorities that are covered by strict enforcement include:
- Australia (ASIC)
- Eurozone (Mifid and local regulators)
- India (SEBI)
- Japan (FSA and JSDA)
- Switzerland (FINMA)
- Great Britain (FCA)
- USA (CFTC and SEC)
Trading platform and software
Because the trading platform is your gateway to the market, you want to make sure the trading platform you use is reliable. Most brokers offer traders a choice of trading platforms to choose from.
Trading platforms are mostly provided by third-party trading solutions such as MetaQuotes Software. Some brokers have also started to develop their own trading platforms to differentiate themselves from other brokers in the industry.
Often, these proprietary platforms are the best trading platforms because they are specifically designed by the broker's clients.
Yet, a good broker should be able to provide a good selection of platforms. In fact, some traders prefer trading from the desktop and some traders prefer trading from their smartphone.
It should be noted that the MetaTrader 4 platform is the most common trading platform you will find among the various brokers in this sector. It is estimated that at least 85% of brokers in this sector use the MetaTrader 4 platform. It is very likely that this is one of the platforms you will use.
Examine the functions of trading platforms. Come with me:
- The complete cartography package
- Wide range of technical indicators
- One-click trading on the trading platform
- Risk management tools such as Stop Loss Order and Leak Stop.
Although all of these elements may seem harmless at first glance, they later play a crucial role in enabling you to have a transparent and productive trading experience.
But when it comes to choosing a platform, it's really a matter of personal choice. Most of these platforms have the same basic functionality.
The best way for you to find the platform that suits you is to test it with the broker-provided demo account. Brokers who do not provide a demo account may not be up to date.
Commissions and spreads
Unlike other traditional financial markets, this market works primarily with spreads rather than commissions. For this reason, most brokers state that their services are free of commission.
So, how do brokers make money?
Simply, earn them by charging the dealers. The spread is the difference between the purchase price and the selling price. For example, if the bid and ask price of the EUR / USD currency pair is 1.0875 / 1.0878, it means the spread is 3 pips.
As a forex trader, you will encounter three types of trading cost structures that are calculated by a broker:
Spread fixed – if the spread does not change and you know the size of the spread before trading.
Float – This spread is variable and constantly varies according to the volatility of the market.
Commission fees – These are calculated as a percentage of the brokerage margin. You need to know the amount to pay before you bargain.
As a rule, fixed spreads are preferred for traders looking for transaction costs. Traders are looking for a smaller spread to prefer floating spreads. In the end, the best choice will depend on your specific business needs.
The type of spread you receive depends largely on the type of business model the broker works with.
The business model of the broker
When looking for a broker you will come across terms like "STP", "ECN", "NDD" and "Market Maker". All these terms are actually used to describe the business model used by the broker. So, what do you all want to say?
There are two main types of brokers: the trade counter and the non-trading office.
Forex or Market Maker traders process their customers' trading instructions through a trade counter in their company. A transaction broker takes over the other side of the transaction, so if you open a position like EUR / USD, the transaction is executed by the broker and he is then exposed to this transaction.
A non-trading dealer (NDD) transfers the transaction directly to a third party. There are two types of NDD brokers (ECN and STP). They are essentially the link between you, the dealer and the market maker or the reseller.
In the first type (ECN), when you click "Buy" on your trading platform, your trading orders are processed in the broker's computerized trading system and transmitted via the electronic communications network (ECN) without a trading counter. The trade term "non-trading office" (NDD) comes from).
The second type of NDD broker directs your transaction orders upon receipt directly to another party for execution by the market maker's trading desk. In this case, the broker is referred to as STP broker (Straight Through Processing).
Forex brokers ECN and STP are both intermediaries of several trading desks or market managers in the global Forex market. Market makers or traders submit their prices to the ECN or a third-party liquidity provider with the volume for which the offer is valid.
The ECN / STP in turn distributes the prices to the operator / market manager associated with the system. It should be noted that the ECN / STP does not execute transactions but serves as a conduit for the transmission of trades of traders to the counter at which they took the price.
Why is it important?
The broker's business model is important because it affects the type of spread you receive and whether the spread is fixed or variable.
Forex broker for beginners
For beginners, traders look for the following features:
Comprehensive Training Resources for Trade – Many brokers offer a variety of training materials to help traders master their skills. These usually include webinars, videos, courses, guides, and articles.
Unlimited access to the demo account for professional traders – most forex brokers, if not all, provide demo trading accounts to their clients. This is especially useful if you are not yet a forex novice or want to test a broker's platform before you trade for the real.
User friendly trading platform – There are a variety of trading platforms in the market, some of which are more complex than others. As a beginner, you do not need a complex platform with features like EA and complex trading strategies. This will come later, but you should now look for a quick and easy platform that you can grab.
Forex brokers for professionals
For professional traders, their trading needs are significantly different from those of an inexperienced trader. In general, professional traders prefer brokers who can offer them:
Comprehensive trading tools – As a professional trader, you now need multiple tools, including a commission calculator, an economic calendar, and, of course, complex real-time charts to implement trading strategies.
Strong leverage – Not for sensitive souls, professionals will try to use this lever to multiply their capital. Leverage increases the risk and also increases the reward.
Low spreads – If you trade a lot, you want to make sure that your spreads do not eat up in your capital. It is important to review the spreads to pay before selecting a broker. The higher the type of account you use, the lower your spreads will generally be.
Forex brokers for day trading
In general, most brokers for a daytrader are able to meet their trading needs. However, given the shorter period with daily traders, it is preferable that the broker can provide the day trader with a variety of different tools to look for trading opportunities.
These include a signaling service, tools such as an economic calendar, the updating of market news and earnings reports. Since you are likely to place more trades in the short term, make sure you know the spreads before you trade.
Forex broker for scalping
Scalers are traders who occupy their positions in the market for an extremely short period of time. Although they only hold a position in the market for a short time, the frequency of their transactions is higher than that of the average trader.
Their goal is to make only a small profit on all the trades they execute, spread across a large number of trades. Note that not all brokers allow scalping. Therefore, if you want to trade as a scalper you should always ask the broker you want to register if he allows scalping.
Types of account
The majority of foreign exchange brokers in the sector offer traders a selection of trading accounts that correspond to the various trader categories.
Micro account The smallest trading account type is the micro-trading account, where a transaction stack equals 1,000 units of the traded instrument.
Mini account – The following trading account type in the hierarchy is the mini account, where one lot represents 10,000 units.
Default account – The default account is much equal to 100,000 units.
For micro and mini accounts, only a small minimum initial investment is required to begin trading. With the standard account, you generally need more trading capital, though the minimum investment can vary from one broker to another.
Given the different minimum investments for each type of trading account, you must select the trading account that corresponds to your investment capital.
Most beginners tend to forget the customer service when choosing the broker they sign up for. They may not realize the importance of customer service for their entire business experience.
Customer service is not about whether you ever need help, but about when you need help. Since it depends on the experience or the knowledge of a dealer, it is always necessary to turn to customer service.
At this point, you want to be able to easily contact the support team. It is therefore important to check whether the broker you want to register with can provide you with reliable customer support.
Check if there are several ways to contact customer support. Most brokers offer their clients various options, such as: E-mail, live chat, and phone so their customers can contact customer support.
In short, you do not want to be able to spend countless nights worrying about what your broker will do to your problem.
In such a highly competitive sector as online trading, some brokers will seek to differentiate themselves from other brokers by offering additional value-added services such as market analysis, news feeds and trading signals.
Most of these value-added services are offered free of charge. However, some brokers may require you to deposit a minimum amount before you can access these services.
Questions to the broker
How can I choose a broker?
We help you! Take a look at our list above and choose the broker that suits you best.
Should I choose a regulated broker?
Yes, you should try to pick a regulated broker to work with. This guarantees the recourse in case of litigation or insolvency of your broker. Keep in mind that you also have access to an investor compensation fund with a regulated broker, which ensures your deposit up to a certain amount.
What should I look for when choosing a broker?
You should consider the range of platforms offered and ideally test the platform you plan to use. For example, look at the additional resources this broker offers.
Signal service, Educational aids, Copy shop. Do not forget to inquire about spreads and account types before depositing.
As mentioned above, there are many factors to consider when choosing your broker. With the help of this guide we have made available to you, you should be able to find out which broker suits your needs best.
To further simplify your search, we also conducted extensive reviews and reviewed each broker on our referral list to ensure it meets the required standards.
Once you've found the right broker to work with, you can focus more on your trading activities and trade more safely, increasing your chances of succeeding in the marketplace.