How To Choose A FOREX Broker
As an individual foreign exchange trader, the margins in which you can make a
profit can be very slim. As a result, making sure you choose the best FOREX
broker for you is crucial if FOREX trading is going to play a significant role in your
long-term investment strategy. With this in mind, here are some of the things you
should be looking for when deciding upon a foreign exchange broker:
Commissions
As with most types of investments, the commission your broker is going to
charge you can serious deplete your profit on a trader. It is, therefore, crucial
that you know in advance how much your broker is going to charge you for a
particular trade before you transacted the trade. That way you can build the
broker’s commission into your profit/loss calculation. Do keep in mind that it is
possible to make a profit on a currency trade and still walk away with a loss once
the broker’s commission has been deducted!
Account types
Different brokers will offer investors different types of accounts, depending on the
type of trader they want to be. Essentially though there are two main types of
account you’ll be considering as an individual trader – the mini account and the
standard account.
Mini accounts are generally tailored to small investors looking to utilise the
Internet to make small FOREX trades. Because trades are not of a significant
amount, it is possible to open accounts with as little as $250.
Standard accounts are for the more experienced FOREX trader and normally you
need an opening balance of $2,500 or more.
Leveraging
A number of analysts believe that it is not possible to make a profit FOREX
trading unless you have the ability to leverage on your account. While this may
be true to an extent, leveraging does not come without risk, thus it is strongly
recommended that you do not utilise this function until you know what you are
doing. In short, leveraging allows you to take positions in currencies in excess of
your account balance – some times as high as 100 or 200 times the value of you
account. In other words, with a leveraged account, you are borrowing from your
broker in the hope that you have correctly called the movement of a currency.
Thus, if you leverage your $250 account 100 times, your exposure is actually
$25,000!
Support
In a 24-hour market, support is vital. If your broker is unwilling or unable to offer
you 24-hour support, then you need to be considering changing broker.
Software
Some brokers have software programs that trade in real time, while others have
a delayed trading exchange. In a market where a matter of minutes can make
the difference between a profitable sale and a loss sale, you need to make sure
your broker’s software shows real time prices.
Broker spreads
A currency spread is the difference between its purchase and sale price. Unlike
other exchanges, foreign exchange market spreads vary depending on the
broker’s chosen spread. Again, one broker’s spread may mean a loss position,
whereas another’s may mean a profit position – so make sure you check that
your chose FOREX broker has competitive market spreads.
