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How to select Forex Broker
Thursday, 21 October 2010 17:16

HOW TO SELECT FOREX BROKER

To find a forex broker is nothing close to being effortless. In fact it's quite tedious, Aahh like searching for a job. You go through each broker like reading your course book for opening up your forex accounts (what a drab). But I like the idea that is proposed by the forex brokers nowadays, by offering free demo accounts. The demo forex accounts help you to trade in a real market environ without even to spend a single penny Yippy …. You can be your own judge to know whether or not you can be a good trader in forex. I've seen it as being true that every forex trader who turns up using a demo account earns a huge profit. So the question arises why can't they do it in real!!

Selecting a Forex broker is not an easy task. Hence our Brokers Matrix chart will help you in finding the best Forex broker, but for this you're needed to relate the criterion, that has its significant importance to you for comparing the numerous forex brokers and their offerings as in the type of accounts. Every forex broker follows different criteria and offer different kinds of services. And so you have the privilege to select a forex broker in accordance with your own trading style.

We've specially designed the summary table given hereunder, for your guidance, keeping in view your trading style, underlying its importance in connection with the eleven major criteria set according to the term you expect to hold on to your positions. Each one of you certainly will not be looking for the same attributes in a forex broker; but it very much calls for your devotion towards forex trading as to how much time you can spare for it. We definitely hope that the summary table will help you in classifying the criteria that are crucial enough in determining and choosing your prospective broker.

Click on each criterion to reveal its meaning

Short positions:
Orders closed same day

Middle term positions:
Several days

Long term positions:
Several weeks

Reputation

* * *

* * *

* * *

Types of accounts

* * *

* * *

* * *

Commission

* * *

* *

*

Spread

* * *

*

*

Execution of orders

* * *

* * *

* * *

Initial Deposit

* * *

* * *

* * *

Regulation

* * *

* * *

* * *

Customer Service

* * *

* * *

* * *

Currency Pairs

* *

* * *

* * *

Trading Platform:

* * *

* *

* *

* * * Very important
* * Important
* Little or no effect on your trading style

Reputation:

Always check for the reputation of a forex broker. It is advisable and a good way to go for a Google search with the name of the broker in addition to the words "complaints" or "faults". Check around the internet and get opinions from several traders made available on forex message boards. Just spend a fair amount of time in conducting your research regarding this matter.

Types of accounts

Demo accounts (are in short for the Demonstration accounts. )

It lets you test the trading platform in real time having the same work related scenario. For this reason free practice accounts are a good medium to enhance your Forex trading experience, as you can actually feel what it takes to be a trader by putting yourself in their shoes with a live account. The demo account is set up with fake money and is an easy manner to judge your broker.

We suggest for you to open the demo account with the same amount that you will be investing in your real forex account as it will help you in managing your trade perfectly well.

You should use this forex demo account for a minimum of 2 months and then check for your trading results. If your results are very much to your satisfaction then you can opt for the real account or else start all over again with the demo, isn't it simple enough…

Mini or Micro Accounts

You can select a mini account if you are a novice in the Forex market. Using higher leverage than in a standard account is quite a possibility but is not considered as a wise move if you are just starting up with forex trading. The comparative table of the brokers, quickly and easily assists you in identifying their offerings to initiate for a mini account with them.

Standard accounts

These accounts have the real character. The minimum capital is higher than the mini account and the leverage is not of much significance. It is advisable to choose a broker using a well-known and well established bank as the bank account where your money will be transferred can't be ignored. Some brokers offer the prospect of opening an account in various currencies: euro, dollar, yen, etc. But, Beware: that if you decide to trade in a currency other than that of your own country, you'll need to be well aware of the exchange rates between your national currency and the currency you resolved to trade with.

Premium Account:

These accounts are the more professional in nature. In this account the minimum capital is higher than the standard account and the leverage, less important. And thereby advisable to select a broker using a known and well established bank, as the placement of your money in those bank accounts cannot be neglected. You just need to be more careful about the whole issue. Most of the organizations and local banks open up premium accounts. And some brokers also offers for opening an account in various currencies: euro, dollar, yen, etc. So if you decide to trade in some foreign currency other than your own country's currency, you'll need to check into the exchange rates of your national currency with that of the currency you look forward to trade with.

Commission:

This term "commission" designates a fixed sum of money taken prior to a position being opened. Most brokers offer commission-free trading. Should a broker ask for one, you need to check whether or not he offers additional services (marketplaces news, economic analysis, etc.). So, how do they earn a living? Saying that brokers offer commission-free trading is only partially true, since they get paid for their services partly through spreads. Their "commission" is therefore proportionate to the size of your position. Brokers also have additional internal mechanisms at this disposal to earn money but this does not fall within the scope of this page. You can use the commission and spreads comparative table in order to help you retain the broker most suited to your needs.
Spread:

The spread is the difference between the sell quote and the buy quote (or bid and ask price). Its importance can be significant if you buy/sell a lot or have trades with low pips. A pip is the smallest price increment a currency can make. For example, if EUR/USD quotes read 1.2658/1.2659, the spread is the difference between both quotes, or one pip in this example (its value here being à 0.0001). You can negotiate the spread with the broker if you are planning on trading large volumes. The spread is generally fixed. When variable, it varies according to market conditions when volatility changes.
Execution of orders:

How fast can the orders be executed? Is it possible to execute automatic trades? What is the maximum amount at which we can trade before there is a need to ask the broker for a price? All these questions have their own significance.

Initial Deposit :

You should search for a forex broker that offers for a low initial deposit. It is not much of an issue as to the amount you should start trading with, but if a broker asks for many thousands just for you to open an account, it is questionable. The requirements for the ideal initial deposit should be $300 to $500 or even lesser than this amount.

Regulation:

The forex market can also be termed as an unregulated market, as there is no central exchange. However, forex brokers themselves are regulated. In the US they should be registered as a Futures Commission Merchant (FCM) with the Commodity Futures Trading Commission (CTFC) and a member of the National Futures Association (NFA). It is an advantage that you can verify a broker's status with the NFA on their NFA web site. If you do not find the broker listed with the NFA with whom you are interested to work with, then you can look for another broker that is listed and comes across as having a clean record.

Customer Service:

It is important to look for a broker who is providing 24 hour customer service. The forex markets can be fluctuating many a times. And so if you have any queries about order execution or a closed order, you should be able to get them answered no matter the time.
Currency Pairs:

Search for a forex broker that offers the currency pairs that you are most likely interested to trade, or at least there is a good variety to choose from. Currency pairs tend to have different kinds of breathing patterns and especially when starting out as a trader, it's always better to have an assortment of selections.

Trading Platform:

A professional and easy user interface is a better choice to use as a trading platform. You would not like to be tackling the features of the trading platform, most of the times, instead of making a trade. Any reputable forex broker will offer the ability to trade on a demo account. The demo account operates in a similar fashion as that in the live trading platform. That definitely gives you a chance to test out the trading platform thoroughly, without the pressure of investing the real money.