Forex brokers are companies that intermediate the access to the foreign exchange market and the overall brokerage business is an extremely competitive one. There are many things to look for when choosing the right Forex broker and traders are confused by a large number of brokers available.
However, doing your homework on what a good broker should offer will end up with having a partner on your side when it comes to Forex trading.
Things to Look for at a Forex Broker
The following are the most important things to consider when choosing a broker and finding some of the best Forex brokers with all these qualities should not be that hard.
A Forex broker must be regulated. This is a must as regulation comes with a specific set of rules the broker must follow in doing business, basically a business conduit set of rules. A broker is regulated by a financial authority in a specific region as online trading allows now to have clients from all over the world. However, regulation should be subject to the actual geographical location where the brokerage company is incorporated.
Being a regulated broker means that if something is happening with the broker, like going bankrupt or having some other financial difficulties, the financial authority will step in and take control of the process. This is being made to protect customers and it is a sign that the broker is a good one.
Having said that, there are few brokers that are not regulated these days. However, if you do find one, it is strongly recommended that you should avoid opening an account with it.
This comes hand in hand with regulation and it is being called that funds are segregated. In doing that, the broker is not able to use client’s money from deposits to pay for other people’s withdrawals.
The funds are usually segregated at a separate bank, a custodial bank, and this guarantee comes up to a specific amount. The norm is 50K, but it could be higher depending on the size of the broker.
As a rule of thumb, the bigger the amount that is guaranteed, the more traders will look to open an account with that broker.
Executing a trade is one of the broker’s responsibilities and a fast and correct execution attracts customers.
Recent years new technological breakthroughs changed the Forex industry in the sense that quotation changed from four digits to five digits. Therefore, instead of, let’s say, buying the EURUSD at 1.1155, a four digits quotation will show 1.11554. This means a trader is actually able to execute a trade on the five digit difference and this comes as an enormous advantage for the trader.
On the previous four digit trading account, when the market was moving fast due to either an economic news or another financial event, trading at the market was difficult. The trader was not being able to open a position due to re-quotations and by the time the trade was allowed the market moved far away from the original entry price.
This is not happening in a five digit trading account so this is a mandatory condition for a broker to have.
There are still brokers that offer a four digit account and trading with them should be avoided by all means. Read More →