There are specific criteria that need to be considered when choosing the best forex broker. From trading style to the client's agreement, here are some useful tips for determining the best broker for you.
Forex trading is not easy. We have to properly understand many unique terms, market mechanisms, as well as practicing fundamental and technical analysis. It is complicated enough as it is. But it could turn even more complicated if our broker applies intricate trading conditions that do not fit our preferred trading strategies. So, the question we are going to talk about in this article is how to choose the best forex broker. It is fairly easy, you just have to follow five simple steps below.
1. Your Trading Style
Each trader has their own style. There are those who like to trade without a dealing desk and those who are okay with a dealing desk. There are those who have just gotten a windfall (lottery, maybe), and students who have their small savings only.
You, too, must have your own requirements; the things that you want your broker to provide for, usually in the different types of accounts that they offer. So, make a list of it.
These are some items you may want to think about:
- minimum deposit and minimum lot
- trading instruments (forex/commodities/futures/binary option)
- spread (fixed/floated)
- social trading connectivity
- deposit/withdrawal methods
- and so on
2. Compile A List Of Reputable Broker
There are countless brokers in the world. Some put no minimum initial capital, some will give you money when you open an account with them, and some put a relatively high minimum deposit.
Some offer forex only, some offer commodities and futures, some offer binary options only, and some cover everything.
But generally, all brokers are equal, except some who might be scams. Compile a list of brokers who suit your preferences. Then visit my first article on Safe Trading, make a checklist, and then remove any broker whose reputation is doubtful.
Afterward, it's up to you to choose which broker you would like to sign up with. You could scour forex forums once again, and read users' testimonies about those reputable brokers to get a feel.
You could ask questions through chat or email to test their support. Or you could just use your instinct to choose one or two.
Don't throw away your list, because you may need it again if the ones you've chosen fail to impress you on trial. The easiest way to filter the best broker may also come from using some tools like broker finder or broker comparison table.
Also, you can pick a broker based on its location. Brokers from advanced countries like the US and the UK are generally more regulated and sophisticated for professional traders.
3. Read the Agreement
You have chosen some brokers that you would like to sign up with. What then? Well, you register yourself. In the process, you will be given some papers to read about trading terms or such, just like when you open an email account or a saving account.
Read them carefully up to the small prints at the bottom. Don't pass it.
I know reading them all maybe tiring and confusing, but you have to fully understand what you sign up for. You won't be able to sue them later when you've agreed to it in the beginning.
4. Try the Demo Account
A demo account is a multifunctional item. You could practice with it, you could try out your systems with it, and you could test your broker with it.
Make a note on the spread and quotes/requotes in particular, because any slippages on the two might destruct your trading plan.
That's why I like the ones with fixed spread better than others who offer floating spread. Floating spread means that spread will vary from time to time, and when there is a high volatility on the market, the amount could go crazy.
See also: Fixed Spread Vs Floating Spread: 5 Things You Should Know
5. Trial And (Hopefully Not) Error
You've chosen carefully, and now you are impatient to start live trading. Well, don't be so impatient. Start with depositing a small amount of money; an exact minimum deposit, if you will, or a bit more than that.
Trade with it for about a month, and try to withdraw from your account. Can you do that? If yes, then congrats on finding your broker. Deposit more money in your account, and start trading for good.
Be aware that although your broker is good, you could still experience losses. A mistake on your part could make you open positions right before the market reverts its direction.
A decision made in panic could create slippages. A miscalculation can get you a margin call. Don't judge a broker based on such misfortunes, be objective. The best broker is one that is able to provide a sound environment for your trading, not one that enables you to always profit.
Safe trading could be assured by choosing a good broker. Aside from the recommendations mentioned above, you should also learn how forex brokers may cheat you.