This article will teach you everything you need to know about evaluating Forex brokers. After reading this article, you will be able to find the Forex broker that best suits your needs.
Forex trading became more popular these past few years. Consequently, many Forex brokers entered the market. In fact, even a simple Google search will give a long list of Forex brokers to choose from. Having a wide range of options is good, but it can also be daunting. With all the Forex brokers out there, how can you find the Forex broker to set up an account with? This is an important aspect of trading currencies. Obviously, having a reliable Forex broker can help you focus on your trades.
There are many types of Forex brokers. Some firms are highly popular and reputable (e.g. easyMarkets, AvatTrade, etc.) they handle accounts and transactions honorably. Other brokers, however, employ questionable prices and business practices. As a Forex trader, you want your broker to be fair, honest, and transparent. The last thing you want to happen is to lose your hard-earned money because of a fraudulent broker.
This article provides you with a step-by-step process of screening and evaluating Forex brokers.It can certainly help you trim down the number of potential brokers to one. Note, however, that you should still be careful even after the finding the best Forex broker. Dont put in all of your money in one go. It would be best if youll make a small initial deposit and trade several positions. This way, you can make sure that you made the right choice.
Trustworthiness is the most important characteristic a Forex broker can have. Cool features, low pricing, instant order processing, and other good stuff are useless if you cant trust the broker that offers them. To gauge this factor, consider the following:
Look for a Forex broker located in a country with developed financial policies. This way, youll have good chances of getting back your money in case problems arise. If you are doing your search online, visit the companys website and check their address. Then verify the information by visiting other online resources. This is important because a company might put an incorrect address on their website.
It is risky to send money to a place with weak financial regulations (e.g. the Bahamas). Fighting a legal battle with a foreign company is difficult, especially if the countrys financial regulations are outdated.
Important Note: Many Forex brokers are based in questionable locations. Thus, this simple strategy can narrow down your search.
You can find many financial regulatory agencies today. These agencies exist to protect people who trade and/or invests in financial securities (e.g. stocks, currencies, bonds, etc.). Thus, the Forex broker youll choose should be registered with at least one regulatory body. This kind of registration doesnt guarantee the brokers legitimacy. But it is still a factor to consider.
A regulatory body can help you in case the broker goes bankrupt of if you encounter problems withdrawing your funds. Remember: regulated brokers are safer than non-regulated ones.
You must verify the brokers financial security before giving them your money. Forex brokers with excellent financial backing are what you should look for. These brokers provide great security for your money.
The broker itself should have large funds. If the broker has a reputable parent company or business owner, so much the better. You can usually find this information in the brokers press releases or About Us webpage. Many Forex brokers have good financial security, but it is still a good idea to check.
Visit the website of the regulatory agency for the region. Most regulatory agencies publish fund-related information about their licensees use this data to determine whether the brokers funds are sufficient. In addition, It would also be great if the broker holds their clients funds in a tier-one bank (e.g. Citigroup, J.P. Morgan, Bank of America, etc.). Sufficiency of funds affects the reliability of the broker and the safety of your hard-earned money.
The reputation of the broker is also an important consideration. Use the internet to search for reviews (i.e. both complaints and testimonials) regarding the brokers you are interested in. Did the brokers clients experience withdrawal-related issues? Is the brokers website always online? These are the questions you have to answer through customer reviews. Obviously, you have to stay away from brokers whose reviews are mostly negative.
Important Note: The internet can help you in obtaining information regarding Forex brokers and regulatory bodies. That means you can finish your research just by launching Google and entering keywords.
Trustworthiness is not enough the broker should also provide services that you can benefit from. Here are the services that you should look for when considering a Forex broker:
You can trade currencies 24 hours each day five days each week (or more, depending on the markets youre trading in). Look at the business hours of the market. The markets schedule is important because it greatly affects the accessibility of the brokers customer support. If theres a huge difference between your time zone and that of your broker, you would want a 24-hour customer service. Many Forex brokers are offering this, so you wont experience problems finding one.
The speed at which the broker executes your order greatly affects the success of your trades. Even a short delay can lead to huge losses. That means you should look for a broker that offers fast order processing. It would be great if youll check this factor yourself. Create a demo account with the broker to test the speed. But since demo accounts are not as fast as real ones, you may also read online reviews by the brokers previous or current customers. If slippages or re-quotes often occur with the broker, look for another one.
Important Note: A demo account is a virtual account that lets you trade assets using virtual money. It lets you discover many things regarding the trading platform and the Forex market itself. Almost all Forex brokers offer demo accounts on their website. You just have to enter your email address and set a password. Youll learn more about demo accounts later.
A currency trading platform is a kind of computer program used in executing trades and performing Forex analysis. Trading platforms usually come with order-taking features and detailed charts. Because youll make trades using a trading platform, you need to determine which ones are offered by your broker. Most brokers offer two or more platforms.
These platforms differ in terms of their features and usage. Some platforms need to be downloaded and installed on a computer. Metatrader4, the worlds most popular platform, belongs to this category. Other platforms are browser-based you can use them straight from your favorite browser (e.g. Google Chrome). It is also important to determine whether the broker offers a mobile platform. If it does, you can analyze and/or execute trades using your Android or iPhone device.
Important Note: It would be best if youll try out the platform using small trades. This way, you can check whether the brokers platforms suit your needs.
The term bid-ask spread pertains to the difference between the biggest bid price and the smallest ask price. The bid price is the amount of money a buyer is willing to pay. The ask price, on the other hand, is the price at which a seller is willing to sell. Many Forex brokers earn money by deducting some portion off of the bid-ask spread. Thus, Forex traders can save money from tight spreads.
Spread margins is a critical factor for traders who use active strategies. If you are one of these traders, look for a broker with tight spread margins.
Its not enough that you know the good aspects of your potential Forex brokers. You should also know what to avoid. This way, you can easily eliminate the questionable brokers from your shortlist.
Here are some tips that can help you identify questionable business practices. Read this part carefully: it can protect you from the fraudulent forex brokers out there.
Stay away from Forex brokers who implement weird trading policies. For example, some brokers prevent their clients from pip hunting. Pip hunting is a trading strategy that involves extremely short time frames. Trades of this type are designed to earn a small number of pips. There are also brokers who limit the amount of time a trader can hold his position.
In Forex, the term requote refers to a situation where the broker cannot or will not process a trade because of price-related issues. It usually happens in fast-moving markets, especially when something shocking happens in the system. For example, you submitted an order based on a specific price. When the broker received your order, however, the price of the currency changed abruptly. When this happens, the broker wont process your initial order. Then they will notify you and give you an adjusted price (usually a worse one).
As a Forex trader, you want your orders to be processed based on the price you chose. Requotes can greatly affect the potential profits (and losses) you can get from your trades. If customer reviews state that a broker requotes orders, look for another one.
You can prevent requotes by placing take profit and/or stop loss orders. However, these orders make you vulnerable to slippage. In Forex, the term slippage refers to a situation where your order gets executed at a different price. In most cases, slippage occurs because of the markets illiquidity. Obviously, even a slight change in price can result in hefty losses. Before sending your money to a broker, check its slippage percentage and read customer reviews.
The term front running refers to the process of trading an asset based on the knowledge about other peoples orders. In Forex, a broker can make personal trades based on the pending order of its clients. Thus, the broker can earn profits at its customers expense.
Important Note: This is an illegal trading strategy. If you are convinced that your Forex broker is using this, report them to the SEC.
Forex brokers want to attract as many clients as they can. They do this using different marketing techniques. Marketing is an important part of any business but some Forex brokers use excessive promises to get more clients. These unscrupulous brokers use promises such as extremely tight spreads, huge returns, and expert advice. When the client discovers the brokers lies, it is too late.
The intense competition between Forex brokers encourages some of them to lie. They stop at nothing just to get the clients deposit. That means you should always be skeptical when checking the promises of a broker.
Most brokers have websites and online documents. These additional resources can help you learn more about a prospective broker before parting with your hard-earned money. This way, you will be familiar with the brokers terms and conditions.
You may also test the brokers customer service capabilities. Give them a call and ask some questions. This technique will give you a good idea of how helpful and knowledgeable the customer service representatives are. Avoid brokers whose representatives are rude, cannot answer queries, or put customers on hold excessively.
Most brokers offer bonuses to their new customers. For instance, you might receive $30 once your initial deposit gets cleared by the bank. There are also some brokers who give bonuses to loyal and/or active customers. Every dollar counts, so you want to take advantage of bonuses as much as you can. Check whether your chosen broker offers bonuses right now.
Forex accounts are divided into two major types: demo and live. Demo accounts, which rely on virtual funds, are designed to help you learn more about the market and the Forex broker itself. Live accounts, on the other hand, require real money because you use them for actual trades.
Then there are different kinds of live accounts. Many brokers offer three live accounts: basic, intermediate, and premium (although they might use other names). The basic live account comes with the simplest features. The intermediate has more advanced features, but not as advanced as the premium one. The premium account, which requires extra fees or large balances, have the most number of features. If your chosen broker has different tiers of live accounts, check the differences between them and select the one that best suits your needs.
Forex brokers have different deposit and withdrawal policies. Read the related policies of your chosen Forex broker before sending them any money. The last thing you want to do is give money to a broker with dissatisfactory withdrawal policies. In addition, some brokers require fees for processing deposits and/or withdrawals. Lastly, determine the average waiting time for money transfers.
Important Note: There are Forex brokers that are extremely picky when it comes to funding sources. Some only accept bank transfers. Others, however, accept online payment processors such as PayPal.
The list given below shows the most useful features you can use in your trades and analysis. Note that some of these features have been discussed above. Your chosen broker might not have all of these features. Thats okay, its a long list after all. But you should go for the broker that offers at least 75% of these.
Large brokers are usually better than small ones in terms of execution time, spread margins, trading platforms, and available features. Thus, you may want to create an account with a large forex broker (especially if you are new to the forex market).
Choosing a Forex broker carefully can protect you from financial losses and sleepless nights. Once you find the right Forex broker, you will have an easier time identifying profitable trades. The step-by-step process above seems like a lot of work. But take heart it can actually save you time in the long run.
Important Note: The foreign exchange market is risky, especially if you are trading on margin. Margins let you trade currencies even if your own funds are not enough. That means you can earn profits without depositing much money. Unfortunately, this can go the other way around. If your trade turns out to be a bust, you will be in debt. You should also consider your trading experience, risk tolerance, and investment objectives before submitting an order. This approach can protect you from undesirable trades and heartbreaking losses.
Save my name, email, and website in this browser for the next time I comment.
Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. No information or opinion contained on this site should be taken as a solicitation or offer to buy or sell any currency, equity or other financial instruments or services. Past performance is no indication or guarantee of future performance.