How to Choose a Broker – The forex broker that you use can significantly affect your trading success. There are two types of forex brokers: market makers and ECNs. But in practice things are not so clear-cut – there are market makers out there who falsely market themselves as not having dealing desks, while there are also some brokers who claim to be true ECNs when they are not.
The choice of broker must be an individual decision, because everyone has different needs and preferences. Both new and existing traders should carefully examine the practices and policy contracts of brokers, and be up-to-date with new information on brokers.
Below are some points that you might want to consider when selecting a broker. You can use it as a rough guide to narrow down some candidates that match your own needs.
- Do you prefer to trade with a market maker or an ECN?
- How safe are your funds with them? Broker location
- Is the broker regulated by any regulatory authority in that country? Note that even if the broker is regulated, no entity can completely guarantee the safety of client funds.
- Are the client funds insured against fraud, theft, or embezzlement?
- Are the funds maintained separately from the broker’s operating funds? Even if the broker says that the funds are kept separate, it does not mean that they are segregated as defined according to certain agencies’ regulations.
- Does the broker provide a trial demo account?
- How many different currency pairs can you trade?
- Does it come with any charting interface? Can you trade from the charts?
- Are you comfortable with the order placing system?
- Do they have one-click trading? This will be useful when scalping.
- Is order execution instant and efficient? This will be especially crucial if you are scalping.
- Does it freeze during times of news releases or when the market is moving very fast?
- If you want to implement your own automated trading system, does it offer an Application Programming Interface (API)?
- Will you need to trade while on the move? If so, check if it has a mobile or webbased version that you can use for trading.
- What is the minimum amount that is required for opening an account?
- What is the minimum trade size? 10,000 or 100,000 currency units?
- Can you make adjustments to the lot size traded?
- What is the maximum size you can trade without having to call for a quote?
- What is the maximum size they will guarantee your orders be filled at? Or, if it is an ECN, how easy is it to fill big orders?
- What order types are supported? Do they support Stop, Limit, Stop-Limit, One-Triggers-Other (OTO) and One-Cancels-Other (OCO) orders?
- How much slippage do you get when trading during news releases?
- Find out the broker’s policy on stop-loss and limit orders. Depending on the policy, it is possible to end up with closing prices that are worse than expected.
- ECNs generally charge a commission when you open and close your positions. Are you willing to accept that?
- Are spreads fixed or variable? If spreads are variable, how wide do they get during important news releases?
- What is the margin percentage? The lower the margin required, the greater the amount of leverage.
- Is the margin requirement identical for mini and standard accounts?
Once you have narrowed the broker list down to a few candidates, be sure to read the terms and conditions of the respective contracts, and understand what you are in for before you sign anything. Later on when you have graduated to an intermediate or advanced phase in trading forex, you may then choose to spread your money among a few brokers so as to reduce exposure to a single broker.