How To Choose the Right Forex Broker
Comparing Currency Brokers and Their Trading Platforms
Though different forex brokers are all placing the same currency trades, not all currency trading brokers are the same. In fact, there's a surprising disparity between what each one offers in terms of trading tools, expenses, choices of leverage, and support. Traders shopping for their first- or a new- broker need to consider a few basic things.
Forex Trading Platform
Does this broker offer charting, news feeds, and market commentary, if needed? In almost all cases, the broker will offer a so-called demo account to let the prospective customer 'test drive' what it's like to trade using their platform. If such a trial period is not offered, or the broker expects a trader to open an account site-unseen, it may be best to look elsewhere.
Currency Spreads, Pips
Most forex brokers don't charge a commission per se, but rather generate income by keeping 'pips', or the spread ... the difference between what it would cost a trader to buy a currency pair versus what it would pay to sell that pair. For instance, the bid/ask spread for the EUR/USD pair is usually 2 or 3 pips.
Since spreads are not necessarily standardized, it can pay to shop around since this will be one of the biggest factors in a currency trader's profitability.
Forex Margin, Account Size Requirements
Many brokers offer 'mini' accounts, and even smaller 'micro' accounts that can be funded with just a few hundred bucks. The mini and micro accounts trade currency lot sizes of 1000 and 10,000, respectively, versus the standard size of 100,000. Accounts that trade the full-sized contracts generally require a much bigger deposit. However, on a relative (percentage) basis to the size of the trades, that deposit is actually smaller. That said...
The margin requirement rate should be crystal clear before opening a trade. Think of it as the 'deposit'. The margin rates generally vary from 1% for standard-sized accounts, to 4% for the micro accounts. A lower margin rate is not inherently better, however, if it's not going to be utilized by the trader.
Forex Fees, Commissions
While forex brokers don't usually charge a per-trade commission, some might. Moreover, some may charge a 'platform fee' for access to their trading software. If there's a particular reason this can be justified, then so be it. However, rarely does one forex broker offer something (like charts, account management tools, training, etc.) that isn't offered by another broker for free.
Regulatory Registration
For U.S.-based forex brokers, check to see if it is registered with the National Futures Association (NFA) or Commodity Futures Trading Commission (CFTC). If the broker is based in the United Kingdom, it should be registered with the Financial Service Authority (FSA). Other brokers based in other countries should also be registered with their local authority.
Registration with the Commodity Futures Trading Commission (CFTC), and any disciplinary history on record, can be verified with the NFA at (800) 621-3570. Or, potential customers can check the NFA's website at www.nfa.futures.org/basicnet/.
Though regulatory registration is no guarantee of a quality currency trading service, an unwillingness to register with the appropriate agency may be a red flag.
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