The forex market has no central marketplace. Traders must choose a broker to help them conduct their trades, but this is no easy task. There is a large and growing number of forex brokers and choosing the right one can be overwhelming.
The following are five essentials to look for when choosing a broker in today’s competitive forex marketplace.
1. Regulatory compliance
A reputable forex broker will be a member of the Australian Securities and Investments Commission (ASIC) with an Australian Financial Services License (AFSL).
The regulatory authority ensures that members meet all their regulatory responsibilities.
To check if a broker is regulated by the ASIC:
- Determine the broker AFSL number typically found on the broker’s “About Us” page or at the bottom of each web page.
- Validate the license number on the ASIC website.
2. Trading Platform
A good trading platform must be stable and user-friendly. Most brokers will give you a demo account to try out their trading platform. Some things to look for include:
- A variety of fundamental and/or technical charting and analysis tools.
- The ease of entering and exiting trades. Are there clear ‘buy’ and ‘sell’ buttons?
- The availability of Metatrader4 (MT4), a highly customisable platform that was specifically built for forex trading. MT4 is the standard platform for forex traders of all levels.
- The availability of elements that enhance trading. These include customisation options, automated trading options, web-based and mobile trading, trading alerts and strategy builders.
3. Account details
Each brokerage has its unique offerings. You should determine the ones that fulfil your trading needs.
Commissions and spreads
Each time you enter a trade you have to pay either a spread or a commission. You need to choose a broker that offers affordable rates without scarificing reliability.
Note: Wider spreads can make it harder to make a profit. A broker offering tighter spreads is ideal.
Brokers have a variety of leverage amounts such as 50:1 or 500:1. Leverage is the borrowed capital extended to traders by brokers. For instance, you can hold a $30,000 position with a $1,000 account size using 30:1 leverage. You must select a broker offering leverage that suits your risk appetite.
Find a broker that aligns with how much you are willing to initially deposit. Many brokers offer different account types with varying initial deposit requirements.
Currency pairs on offer
Most brokers offer a big selection of forex pairs but it’s important to select one offering the pairs you want to trade.
It’s mandatory to choose a broker with fast execution speeds that allow you to trade at your desired price. Low latency may be a significant contributor to your success in the market.
Ease of deposits and withdrawals
Each broker has specific funding and withdrawal policies. Choose a broker that facilitates the deposit and withdrawal of funds in a hassle-free way.
4. Educational tools
Many brokers provide educational tools but you need to opt for one with quality material that will enhance your trading. For example, FP Markets provides excellent video tutorials, e-Books, and a professional trading course.
5. Customer service
The forex market operates 24-hours a day. A broker must be readily available to answer your questions and offer technical support when you need it. You need to consider the ease of reaching a broker and its prudent to go with one offering live chat together with phone and email support.
The bottom line
As a minimum, a good broker meets all the five essentials. You can eliminate the brokers that don’t cut the mustard right from the start.