Choosing
a Forex Broker in 20 Easy Steps
by Stephane Kouakou
Introduction
You are probably on the way to be a millionaire.
Well, if having good knowledges is important for full success, your
sucess also depends on your broker. So before Trading in the FOREX
(FOREign Exchange) Market, choosing a good broker is a milestone.
A broker is merely an intermediary (a middleman)
between YOU as a person and the very FOREX market. The broker (an
individual or a corporation) will actually carry out your orders
to buy or sell currencies.
Now we are going to browse the following 20 items
you need to find the proper broker that you will work with.
1. The Trading Platform
To send a buy/sell order to your broker you use
a computer software called a 'Trading Platform'. Most of them comes
with a demo account. Using the demo account to check the software
for ergonomics (comfortable in use), fast execution, slippage (difference
between the price of a currency at the order and the price of the
currency at execution), charts, etc...
2. The Leverage
The Leverage enables you to take a position more
important than the capital you invest. The greater is the Leverage
and the greater is the risk to lose your money. So, for the purpose
of limiting the risk the leverage should be lower than 10.
3. The Spread
The spread represents the difference between
the Ask Price and the Bid Price offered by a broker. For example
if the broker offers a fork of Bid: 1.3600 and Ask: 1.3608 on the
euro/dollar that means you can sell the parity to 1.3600 and buy
it to 1.3608. The difference between the two prices is 0.0008. We
say that the spread is worth 3 pips.
The Spread is important when applying short term
trades with few movements in pips.
4. The financial solidity of the broker
The choice of an important broker is very useful.
Indeed, with a big capital such a broker can guarantee your deposit.
5. The Language
The main worldwide brokers giving access to Forex
are primarily located in the United States. In fact, to be able
to invest in this market, it is necessary to speak English and to
know a minimum of the American legislation in order to choose the
good broker. However, with the growing of individual investment
in the FOREX market many brokers provide services in different languages
and we can find serious brokers outside the USA, in France for example.
6. The Country
For the same reasons stated above, you can trade
currencies while living almost anywhere in the world !
7. The Customer Support Service
Contact the broker via Telephone, E-mail or Live
Chat and check the delay of the replies, the availability of the
customers service and the relevance of the given answers (are the
answers useful to you ?).
8. The Speed of Order Execution
Use the Demo account and the platform to test
the broker execution speed.
9. The Margin
The lower the margin requirement (the higher
the leverage), the greater the potential for higher profits and
losses. The percentages of margin varies from 0.25 and more.
Most brokers have minimum balances to start forex
trading. The lower is the best. In general they vary from $250 to
$1,000.
11. The Transaction Costs
Of course, don't forget that the cheapest broker
is not the best.
12. The Slippage
About the slippage, it is necessary to rely on
comments left on forex forums.
13. The Withdrawal
Ask all informations related to withdrawal. In
effect, it is often hard to get your money out of your trading account.
14. Is the FOREX Broker registered ?
If your broker is located in the United States
verify if the broker is registered as a Futures Commission Merchant
(FCM) with the Commodity Futures Trading Commission (CFTC) and a
NFA member. Theses two organizations (CFTC and NFA) have missions
to protect the public against abusive trade practices fraud, and
manuipulation.
A serious broker will provide you with some extra
including real-time FOREX quotes, integrated charting and technical
analysis packages.
17. Mini accounts
Mini accounts are account with lower minimal
requirements ($250 or $300). A mini account is good to get started
and test your trading skills and get experienced.
18. Available currency Pairs
The prospective broker must provide trades for
the seven major currencies (AUD, CAD, CHF, EUR, GBP, JPY, and USD).
19. Rollover charges
The Rollover charges is the difference between
the U.S. interest rates and the interest rates of another country.
The greater the interest rate differential between the two currencies
in the currency pair, the greater the rollover charge will be. For
example, if the British pound has the greater interest differential
with the U.S. dollar, then the rollover charge for holding British
pound positions would be the most expensive. On the other hand,
if the Swiss Franc were to have the smallest interest differential
to the U.S. dollar, then overnight charges for USD/CHF would be
the least expensive of the currency pairs.
20. Trading Hours
The global Forex market trading hours are: 5:00
pm EST Sunday through 4:00 pm EST Friday. So, make sure your broker
allows you to trade in this trading period.
Conclusion
In short since the choice of a broker is extremely
important to trade currencies in FOREX market, take time to choose
your trader before starting. I especially suggest you to join FOREX
forums and get feedbacks and tips from experienced traders.
Kouakou Stéphane is an
IT consultant living in Côte d'Ivoire (Ivory Coast) and specialized
in many IT areas including Web Development (ASP, JAVA, ASP etc...),
Application Development (C,C++,DELPHI,JAVA etc...), Databases (MySQL,
SQL SERVER, POSGRESQL, ORACLE, IBM, etc.) and in several other fields
especially in trading (FOREX). You can meet his tips at http://easy-daily-forex.blogspot.com
