Broker – Choosing a Broker
Choosing which broker to trade is one of the most important decisions you have to make before you start trading forex. There are so many different choices out there so this process will be time-consuming, but finding yourself a good broker that suits your needs will protect you from having a major headache in the future. Before you start searching, you should know how to compare forex brokers. Reading this article will be very informative for sure.
Security and Regulations:
The first and most important qualification is the security of your money-investment. Probably you wouldn’t want to hand over hundreds or thousands of euros to a company which you can’t trust. Therefore, you should check to see if your broker of choice is registered with any regulating authorities. However, just because it writes on their website that they are regulated doesn’t make it so. To be 100% sure and safe, you should check the websites of the regulating bodies themselves. It is also important for forex brokers to be well-capitalized.
Here is the list of countries with their corresponding regulatory agencies:
-Australian Securities and Investment Commission (ASIC)
-Financial Services Authority (FSA)
-National Futures Association (NFA)
-Commodity Futures Trading Commission (CFTC)
-Association Romande des Intermédiaires Financiers (ARIF)
-Swiss Federal Banking Commission (SFBC)
Minimum Deposit and Trade Sizes
Some brokers require a minimum deposit of $10.000 (or equivalent) in order to open an account. There are also brokers which allow you to open an account with as little as $10.
Money-Risk management is an important aspect of any type of investment so minimum trading size is another subject to pay attention, especially for smaller accounts.
Spreads and Commissions
Usually, forex brokers offer commission-free trading. Brokers make their money on the spread (The difference between the bid and offer prices). Since spreads affect your profit we can say that the tighter the spread, the better for you. For example, consider that you are trading 1 mini lot (10.000units or 0,1 lots) USD/JPY and the spread your broker offers you is 3 pips. This means you are paying $3 per trade. If you trade 3 times/day that means roughly $9/day, $180/month, $2.160/year. If you instead had a broker that offers you 1 pip spread then you would be paying $1 per trade, $3/day, $60/month, $720/year. As you can see there is a huge difference.
Variety of Instruments
Some forex brokers allow you to trade only major pairs (such as EUR/USD, GBP/USD, USD/CAD, USD/CHF, AUD/USD, USD/JPY etc). Some brokers give you more flexibility as they have a much wider range of tradable instruments (Gold, Silver, Oil, CFDs etc) in addition to the major currency pairs.
Before you open a live account or during trading, you may have plenty of questions to ask. Therefore, It is very important that your broker has a very good customer service (and after sales support). Do not hesitate to contact them. Ask everything y