Six important criteria to consider when picking a forex broker
Forex brokerage is an intensely competitive industry. There are literally dozens of forex brokers. If you don't know exactly what to look for it can seem daunting.
In order to make your life a bit easier, here are a few important criteria to bear in mind when looking for a forex broker.
Above all, a good broker must be safe and trustworthy. You wouldn't hand your hard-earned savings to someone you don't trust, right? Well we wouldn't either!
Fortunately enough, it's relatively easy to check whether or not a broker deserves our trust. A few regulatory bodies are in charge of identifying the good guys and the not-so-good guys.
Here is a list of the major regulatory bodies :
- United States : Securities Exchange Commission (SEC - http://www.sec.gov/), Commodity Futures Trading Commission (CFTC - http://www.cftc.gov/)
- United Kingdom : Financial Services Authority (FSA UK - http://www.fsa.gov.uk/)
- Australia : Australian Securities and Investment Commission (ASIC - http://www.asic.gov.au/)
- Canada : Canadian Securities Administrator (CSA - http://www.securities-administrators.ca/)
- Sweden : Finansinspektionen (Swedish FSA - http://www.fi.se/)
- Denmark : Finanstilsynet (Danish FSA - http://www.dfsa.dk/)
- France: Autorité des Marchés Financiers (AMF - http://www.amf-france.org/)
- Germany: Bundesanstalt für Finanzdienstleistungsaufsicht (BaFIN - http://www.bafin.de/)
- Switzerland : Swiss Federal Banking Commission (CBFS - http://www.finma.ch/)
Before you even consider opening an account with a broker, make sure it falls under the supervision of one of the above regulators.
Low trading costs
Nobody can avoid trading costs. Every time you make a trade you will have to pay a commission or a spread. Quite naturally, you will seek out the lowest possible trading costs.
However, keep in mind that quality always comes at a price. It could be worth paying a bit more for a much more trustworthy broker. It's a delicate balancing act : the key is to find the best value for your money.
Easy deposit and withdrawal of funds
Good brokers allow you to easily deposit and withdraw your money. Brokers have no reason to prevent you from withdrawing your money. The only reason they keep your money for you in the first place is to facilitate trading.
Make sure a broker's withdrawal process is effective, quick, easy.
Stable trading platform
As a forex trader, you will spend most of your time on the broker's trading platform. Therefore, it must be user-friendly and stable.
Remember to check out the features that a broker's trading platform offers :
- Does it have a news flow?
- What trading tools does it offer?
- Does the platform display all the information you need to trade effectively?
Quality of execution
Your broker must absolutely execute your orders at the best available price.
Under normal market conditions (normal liquidity, no announcements or unpredicted events), your broker owes you the execution of your order at market price, or at least very close to it.
Speed of execution is also critical, especially if you plan on scalping. A difference of only a few pips can make the difference between gain and loss.
Effective client support
Nobody is perfect in life. Nor are forex brokers. So make sure you pick a broker that is easy to reach when a problem comes up.
A broker's ability to swiftly solve any technical or account problems is as important as the performance of order execution.
Read the next article : How to check if a forex broker is serious or not