This post is part of the free beginners Forex course
One of the most important aspects of trading is the selection from which you will choose your broker. The broker’s prominence is highlighted because of his/her relationship as the ‘link’ between yourself, the retail trader, and the Forex market. The broker is introduced as individual investors cannot directly trade Forex via the interbank market; thus the broker acts as the intermediary allowing the individual investors to trade.
It is fair to say that the main aim for an individual investor is to gain an opportunity at being able to speculate and trade in the often volatile market and this is the foundation upon which brokers work to make their money. ‘The spread’ is the term used to signify the difference between the ‘Bid’ and ‘Ask’ price for a currency pair and this is also the chief method brokers use to make money. Brokers could also earn their money by charging a commission, but most do not. I recommend using a “no dealing desk” broker as this removes the middle man from the equation. To see what I mean about dealing desks, see the short video below.
As explained in a previous section, Market maker brokers take on the opposite side of your trade. In other words, if you go long AUD/USD, your broker will be short AUD/USD. The theory behind it, is that most traders will lose in the long run and your broker will benefit from you losing while profiting from the spread. ECN brokers operate differently, as they send your orders to a third party liquidity provider and charge a commission instead. From what I have seen, even with the commissions true ECN brokers are still more cost effective than market maker brokers.
Obtaining a good broker to use is critical to your trading success. A good broker should have consistent spreads as well as the ability to demonstrate quick execution during fast markets. These factors are key because the actual size of the spread charged by brokers tends to vary.
It is easy to perform a quick online search that will reveal thousands of Forex brokers offering their services, but again this raises the question – which one do I go for? Here are several safety measures and crucial factors to keep in mind when choosing:
- Capitalization level or overall size. A broker with better liquidity means they have this because of their higher capitalization and are thus considered a large broker. A larger broker has the ability to offer you better spreads and execution.
- Are they registered in your home country? To heighten your safety and protection you should always choose a broker that has been regulated to offer Forex trading in your country–or at least a major developed country. Ideally, the broker should also be fully insured by Lloyd’s of London, for instance.
- A broker needs to provide world-class customer service: this means round-the-clock availability while the market is open via phone, chat and/or email services. They should also be in possession of a trading platform that is free and, of course, user-friendly.
Secondary aspects to consider when choosing a broker:
- The all-important initial deposit requirement, which is especially vital for new investors looking to get the ball rolling with small amounts.
- Ensure that the broker has demonstrated competitive and consistent spreads.
- Make sure that you have given consideration to the amount of leverage being offered by the broker as well as the related margin requirements. NOTE: The general leverage that is considered sufficient for Forex trading is 50:1 or 100:1; however, some brokers can offer up to 500:1 leverage. Please know the risks associated with leverage.
- Consider the number of currency pairs available.
- ALWAYS adopt a ‘too good to be true’ attitude, take extreme precaution, and avoid brokers who claim to offer or even guarantee extremely high returns on your investments.
- It is always recommended that your brokers have instructional videos regarding the use of their platforms.
- What is their deposit and withdrawal process like? This should be easy to use, while the money should be held in separate accounts at ‘Tier 1’ banks.
Upon diligently considering each of the above mentioned points and finally choosing a broker, the next step is to open a Forex account. When you first open a Forex account you will need to provide some personal details such as your name, address, age, date of birth, citizenship details and employment status etc. Don’t be put off; this is a typical process for every broker.
Forex Broker Used by Dream World Forex Members
A Forex broker that is based upon the above listed aspect is IC MARKETS, regardless of your location, whether you are in the UK, Europe, Canada, Australia or Hong Kong.
What I love about IC Markets is that they have consistent execution, regardless of whether the market is fast or slow. They have consistently competitive spreads, they exceed expectations with their excellent customer support and they possess a wide range of user-friendly platforms. For anyone who is looking for a true New York Daily Close (5pm EST), they have the correct server time for this. Please read the article associate in the link to gain a greater perspective on New York Charts. This knowledge is crucial to your success as a trader.