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This—on top of long-winded jargon and unclear statistics—can make hunting for the right Forex broker challenging, not to mention time consuming.
To help navigate the ever-changing brokerage landscape, the research team at FP Markets have combined forces to highlight key factors Forex traders should consider before selecting which broker to partner with.
Regulations and licenses
As the evolution of the foreign exchange market progresses, so do regulatory standards.
Given the increasing awareness of risks associated with FX trading, many opt for the safety of regulated brokers.
Regulated Forex brokers operate in accordance with their respective regulatory bodies, assuring fairness and ethical behaviour. Regulatory oversight includes external audits, strict capital requirements, efficient management structure, risk disclosure, leverage limits and segregation of client funds.
Well-known regulatory organisations:
- The Commodity Futures Trading Commission (CFTC)—an independent US government agency.
- The National Futures Association (NFA)—based out of the US.
- The Australian Securities and Investments Commission (ASIC)—Australia’s integrated corporate, markets, financial services and consumer credit regulator.
- The Cyprus Securities and Exchange Commission (CySEC)—the financial regulatory agency of Cyprus.
- The Financial Conduct Authority (FCA)—the conduct regulator for nearly 60,000 financial services firms and financial markets in the UK.
The Importance of Customer Service
Thanks to the wizardry of technology, digital customer experience is important.
Regardless of experience, having access to 24/5 customer support through phone, email and live chat is a must for all trading issues.
A knowledgeable customer service team (preferably in several languages) boasting quick response times is a broker that understands a trader’s needs. Consequently, customer service is a key deciding factor traders often use to select which broker to park their funds with.
Deposit and Withdrawal
A hallmark of a great Forex broker is a company that provides hassle-free means of depositing and withdrawing funds, often void of internal fees.
Debit and credit card funding is popular. Other common methods of funding to look for are bank transfers (note this can take up to 1 business day with most brokerages), PayPal, Neteller, Skrill, and broker-to-broker transactions. In addition to straightforward funding methods, several major currency funding options should be available, including the USD, GBP, JPY, EUR and CHF.
The withdrawal process should be just as simple—regulated brokers generally process withdrawals to the same account used to deposit funds.
Know Your Trading Costs
Each time you execute a trade, trading fees must be taken into consideration.
Trading spreads (difference between bid price and ask price) and commissions are common transaction costs. However, this can vary dependent on the trading account selected. For example, FP Markets offer two primary Forex accounts: Standard and Raw, each with a minimum opening balance of 100 AUD or equivalent.
The Raw account has spreads as low as 0 pips in some instances, with a 3 USD commission per lot each side. The Standard account is commission free, though spread is typically higher.
If you’re a scalper (scalping) or short-term day trader, opting for a broker that offers an account delivering low spreads and fast trade execution is perhaps the more appropriate choice. Longer-term swing or position traders, on the other hand, could opt for different pricing structure.
Additional costs to be mindful of are margin, swap rates (an interest adjustment made to your account—the client will either receive interest [a credit] or incur a debit for holding a position overnight), data feeds, platform fees and inactivity fees.
The crux of the matter is you must recognise (and understand) the costs to trade to compare which brokers offer a more efficient service.
Considering most traders prefer using the broker’s trading platforms, a user-friendly interface is necessary. Effectively, you must ensure the platform offers everything needed to satisfy your currency trading system, such as charting features. Some traders also require the services of a social trading platform.
The majority of recognised Forex brokers offer MetaTrader 4 (MT4) and MetaTrader 5 (MT5) platforms (third-party solutions), both for live and demo accounts. Featuring a wide-reaching user base, MetaTrader platforms not only support multiple operating systems, such as Windows OS, Mac OS, Android, and iOS (think Apple devices like iPhone or iPad), automated trading features are also available (expert advisors enable traders to take advantage of automated trading strategies). MT4 works with MQL4 IDE (programming language), while MT5 is linked with MQL5.
Furthermore, most brokers run additional trading platforms on top of their MetaTrader offering. FP Markets provide the Iress platform, packed with enhanced technical analysis tools and access to genuine exchange rate pricing.
The main takeaway from this article should be to exercise your due diligence.
Take time to examine reviews from other traders, confirm the broker of choice is regulated, determine whether their customer service is satisfactory and test run trading platforms. Assessing short-listed brokers thoroughly cannot be overstated.
Although not highlighted in the article, additional aspects to include in your decision process are the following:
- A broker’s business model: a dealing desk (often referred to as a market maker broker) broker or a non-dealing desk broker?
- Trading instruments? How many currency pairs (Forex pairs—think EUR/USD and GBP/USD) are available to trade, for example?
- Leverage? Most brokers offer in the range of 1:1 to 1:500 leverage. Remember, leverage and margin are two closely related concepts.
- Market research and education. A great broker offers daily analysis, regular webinars and a steady stream of educational content about the Forex market and Forex trading.
- High levels of data security.
Disclaimer: The information contained in this material is intended for general advice only. It does not take into account your investment objectives, financial situation or particular needs. FP Markets has made every effort to ensure the accuracy of the information as at the date of publication. FP Markets does not give any warranty or representation as to the material. Examples included in this material are for illustrative purposes only. To the extent permitted by law, FP Markets and its employees shall not be liable for any loss or damage arising in any way (including by way of negligence) from or in connection with any information provided in or omitted from this material. Features of the FP Markets products including applicable fees and charges are outlined in the Product Disclosure Statements available from FP Markets website, www.fpmarkets.com and should be considered before deciding to deal in those products. Derivatives can be risky; losses can exceed your initial payment. FP Markets recommends that you seek independent advice. First Prudential Markets Pty Ltd trading as FP Markets ABN 16 112 600 281, Australian Financial Services License Number 286354.