There are so many forex brokers out there, and the market is largely unregulated (slowly changing as many brokers are now becoming regulated). This means that the trading experience can vary greatly from broker to broker. How to pick a forex broker is an individual process, as each broker will focus on certain things which will appeal to some traders but not others.
How to Pick a Forex Broker – does your broker offer this?
- Competitive Spreads: In forex trading there is generally no commission, instead traders pay a spread (difference between bid and ask price) when making a trade. Some brokers offer fixed spreads, while others offer a variable spread. For instance one broker may offer a fixed 3 pip spread on the EURUSD at all times. Another broker may offer a variable spread which fluctuates between approximately 1.8 pips during high volume times and 3.5 pips during low volume times. The spread that is paid can have a huge impact on profits, especially when day trading or doing lots of trades. Generally the lower the spread the better.
- Few Re-quotes: A re-quote is when you place an order and the price changes and you get “re-quoted”. A message pops up asking you if you want to proceed at the re-quoted price. If a broker is showing a very tight spread, but constantly re-quotes, then they are not actually giving you that spread even though they are advertising it. Therefore, you want a broker that offers a competitive spread and actually lets you trade at the rate you see.
- Safety: One of the major concerns for a trader is being able to get their money out of their account. It doesn’t matter if you make a killing in the markets if your broker scams you or your money gets caught up somewhere. I have had issues with regulated brokers, and have had great experiences with unregulated brokers. That said, regulated brokers are under more scrutiny than their unregulated counter-parts so preferably choose regulated brokers over the alternative.
- Customer Support: If you need help with something you want your broker to be there to help out. To make sure they are, send a few emails through to customer service asking about something when you start up an account. Also, make sure the broker has live chat or phone support so you can get quick access to help if something goes wrong and you need to speak with someone quickly. Test out the customer support by sending emails and trying out chat support before you make a deposit.
How to Pick a Forex Broker – don’t always trust reviews or other people’s opinion
While reading about forex brokers in forums, on websites and in reviews can be of some value it can also be totally inaccurate. Brokers may post their own reviews and what I find more often is that traders bash brokers simply because they lost money at trading. Since about 90% of people who try trading lose money, it is no wonder so many traders blame their broker. It is much easier to blame someone else than accept personal responsibility.
So ultimately I don’t trust reviews. The best way to test a broker is to read what you can on the broker’s website to make sure they offer what you need. Then open a demo account. If you like what you see, make a small deposit, trade, make a withdrawal and if all is well then continue.
Just like trading, avoid taking short-cuts. Do your own due diligence and do not blindly trust someone else’s opinion. Reviews and information on a particular broker may be a starting point, but ultimately you need to test that broker out for yourself.