4 Critical Considerations When Choosing A Forex Broker in 2019
The price of entry for establishing an online trading business, especially for the Foreign Exchange currency market (FOREX) and Contracts For Difference (CFDs) is modest and mainly consists of things most people already have, such as internet access and internet-enabled devices.
There are inexhaustible sources of information, much of it free, pertaining to learning the details of trading financial instruments. Much the same can be said for the trading software often referred to as “platforms.”
Of course, investment or trading capital is needed and we will mention only briefly that it is critically imperative that this money be true risk capital. The potential returns of online trading are substantial, meaning that the level of risk is as well, so a mind cluttered with thoughts about financial obligations of any kind attached to trading funds is a recipe for mental, and quite possibly physical, disaster.
The final element is a broker, a company that will provide access to the desired financial market. Similar to the almost endless choices for trading training information and platforms, there is a bewildering array of choices of brokers, so we offer the following information in the hopes of making it easier to compare and then choosing a online brokers.
4 Four Things to Examine to Compare Online Brokers
1) Regulatory Oversight
Look for a broker that is authorised by a branch of a major world government. The main financial centres of the world are in Sydney, Tokyo, Switzerland, London and New York. All these governments have strong regulations in place to protect the investor. Due to stringent U.S. regulations pertaining to leveraged speculative trading, brokers that operate there are subjected to intense scrutiny. Much the same is true for brokers based in Australia, Japan and Europe. This regulatory oversight makes it much easier to compare and choose online brokers.
In the early days of Forex market trading and CFD trading, oversight was lax, leading to investor abuse that was stunning in its creativity. Brokers that operated legitimately have survived, while the less scrupulous have been culled, so longevity is another reassuring criterion, along with the location of the regulatory and licensing oversight agencies that will assist you to compare and choose online brokers.
These two criteria will in and of themselves help to choose the right online broker
2) Customer Service
We favour brokers that have telephone customer service, but in the modern environment, many good brokers have live chat as a way to contact them, along with email that is typically through the broker’s online message portal. We give the highest points to brokers, that when called, answer the telephone, or at worst, have wait times of under three minutes. When we want to reach the trading desk in a crisis, such as when some link in the broker/trader online loop fails and it is necessary to close trades or cancel orders immediately, we want someone now, we do not want to listen to music and a soothing voice saying our call is important. Always compare and choose online brokers with telephone access.
This is somewhat less of a factor now that mobile trading apps make it possible to manage a trading account via cellular connections and gain reassuring redundancy in the bargain, but it is still nice to speak with a live person for those occasions when there is a need for information that is not contained in a broker’s FAQs section.
The same is true of chat. A broker that makes you jump through the hoops of establishing a chat session had better be available most of the time, during business hours at a minimum. We would eliminate any broker that three consecutive times offers words to the effect, “All our agents are busy helping other customers. Please leave your message and email address and we will reply as soon as possible.”
Email messages should be acknowledged immediately. This is typically an automated process, but when we compare and choose online brokers, we like those that respond the same day, keeping in mind that we do advise against relying on email for highly time-critical communications.
3) Choice of Trading Platforms/Ease of Trading Platform Use
Our chief criterion with regard to choices and ease of use of trading platforms is the compatibility of the platforms and our devices. Anyone who has test-driven a platform that came highly recommended only to discover connectivity and performance issues due to the software not playing nice with our operating system or conflicting with other software we use understands what we mean.
Even someone who has never used a trading platform before can relate to this experience with any number of other software and app providers. The most popular forex trading platform worldwide is MetaTrader 4.
Confidence that the broker’s trading platform can be relied upon to perform as expected is a paramount objective.
Fortunately, we know of no brokers that do not supply the opportunity to test trading software with simulated trading demos. Along those lines, we give high marks to brokers that let clients maintain a simulated trading account beyond a limited trial time span. If anyone should encounter a broker that does not offer simulated trading of any kind, run the other direction as fast as your fingers and mouse can carry you and devote the proper amount of energy to choose the right larger online broker.
4) Brokerage Fees/Minimum Account Size/Minimum Trade Size
We would rank this toward the top of our list, but with the fierce competition between brokers eager for clients, the transaction costs of trading in the form of spreads (both fixed and variable) and commissions is fabulously cutthroat, in a way that favours the trader, which will become obvious when you compare online brokers.
The same can be said of minimum account and buy and sell trade sizes. Brokers that take a One Size Fits All Approach are out-dated. The chief advice we offer here is that larger depositors have access to lower trading fees and more services in most cases, but the bona fide brokers do not condescend to the new traders making smaller deposits as part of an effort to test the waters without accepting an outlandish level of risk. Good brokers understand that today’s little fish could turn out to be tomorrow’s whale; even Warren Buffet started small.
One factor we often use when we compare online brokers is their fee schedules. For example, some brokers allow free unlimited withdrawals; others provide one free withdrawal per month, with any subsequent withdrawals incurring a fee, while a few charge a fee for every withdrawal. If we do not see a concise fee schedule on the broker’s website, this raises flags for us, so we call or write and ask the tough questions in our quest to choose the right online broker.
While we list the major consideration when choosing a forex provider above there are other considerations you might wish to keep in mind. These are:
Trading Technology: Execution speed can be important when trading with variable spreads
Type of Broker: Broker falls into 4 basic types of brokers. These are Market Maker, Electronic Data Network, (ECN), Direct Market Access (DMA) and Straight Through Processing (STP). In some cases, brokers might offer hybrids of the above or even different technologies for different trading accounts they offer. Using a Dealing Desk broker or No Dealing Desk broker can impact the spreads and associated trading costs.
Demo Account: If the broker offers a demo account, this can be very useful to use if you are new to trading or even want to test forex trading strategies.
Education Tools: A good broker should offer free tools to teach you about forex trading.
Risk Management Tools: Some brokers offer risk management tools which can help minimise your losses when price movement for currency pairs are not in your favour.
Reviews: Forex reviews from past and present forex traders.
The wide array of brokerage choices is both a blessing and a curse. The blessing is that many choices translate to the opportunity to select a broker that will mesh precisely with your most important needs. The curse is that with so many choices, confusion is a distinct possibility. The key thing is to give yourself as much time as you need to choose the right online broker. The financial markets were there prior to your coming along and will be after you are gone.
These four considerations to choose the right online broker are not meant to be taken as the only four you need to look at, but hopefully this information will get the cogs in your brain turning to the extent that you will think of other questions you would like to have answered and that you will refer to our comparison tables for those answers.