When it comes to retail forex trading, traders often tend to focus on the advertising hype created by the forex broker rather than the important factors relating to their specific trading strategy. Like a game of chess, all of the pieces should be taken into consideration before making a move. Sooner rather than later, traders end up realizing that when it comes to long term trading, more factors should be considered when choosing a brokerage. Attesting to this fact are the numerous complaints by traders on various forums about how their forex brokers don’t quite meet their expectations. It all comes to down to the traders doing their homework before hand. So, what really are the important factors when choosing a broker?
In this article we look at some of the most important factors when choosing a broker that traders should look into.
Choice of instruments
While forex or currencies remain the most popular instruments, not all traders are the same. Some prefer to trade stock CFD’s, futures or precious metals. The first step for the trader is to identify the instruments that they prefer to trade. This might not be based just on the preference of instruments but also can be handy when it comes to hedging exposure for a forex order against another asset or instrument.
A forex broker that offers a wide range of trading instruments is usually better, but for the most part, this eventually comes down to the trader in question. Generally, if a brokerage can offer a vast range of financial instruments it is a clear indication that they have access to a number of different markets, and have therefore gone through numerous authentication procedures with liquidity providers to get price feeds for all the different instruments. Overall this should show a trader how much a company is willing to invest into its product offering to satisfy it’s clients.
Spreads and trading conditions
Once you have identified a few brokers who offer the trading instruments that you prefer to trade, the next step is to compare the spreads and trading conditions. When it comes to trading conditions, traders should focus on aspects such as overnight swaps that are charged, as well as the commissions and spreads from the broker.
Most traders tend to ignore these factors but, cost definitely plays a big role if you want to be serious about trading. It’s not going to be beneficial to a trader’s overall performance if all of their analysis and success in trading is spent on expensive overnight swap charges.
There are many websites that allow you to compare the spreads and trading conditions from different brokers. However, it helps for traders to also look at brokers individually and to make a personal assessment to suit their own trading requirements.
Banking – Deposits and withdrawals
After you have managed to nail the first two aspects, the next step is to look at the banking conditions. It is common knowledge that forex brokers have different fees. Therefore, the first step is to look at your most preferred method of deposit and withdrawal and to focus on the fees that the forex broker will charge.
Some forex brokers tend to waive the fees for first time customers. However, traders should note that this can be a trap and soon enough the fees can be larger than expected. At this stage most traders would benefit from finding a broker who allows free deposits and withdrawals no matter how long you have been with the brokerage. After all depositing and withdrawing functionalities are important factors when choosing a broker.
Regulation one of the most important factors when choosing a broker. Ideally, it helps to trade with a forex broker who is regulated in your country of residence. However, this is not always possible. There are some regulatory bodies that are more widely recognised globally such as the Cyprus Securities and Exchange Commission (CySEC) located in Cyprus or the Financial Conduct Authority (FCA) in the UK
For the most part, trading with a regulated forex broker offers some kind of assurance that the forex broker won’t simply disappear and take your funds along with them. Most of the regulated forex brokers offer a custodian banking service with segregated accounts. This helps to keep the trader funds separate from the broker’s operating capital and can allow you to recover your funds in case the forex broker goes bust. In certain jurisdictions such as in Cyprus and the UK, this is a legal requirement.
With all of the above factors in place, maintenance of your trading is paramount… which is where a great support system is really needed. No matter how good the conditions, how low the spreads are or how fast the execution is, without good support from broker – trading could be impossible. The support offered to the traders from a broker is often overlooked until a trader reaches a point where they need urgent help. Always make sure that when you register with a broker, that you have an account manager who you can reach, and a point of contact should you be experiencing technical issues. Remember, 24/5 support should be standard with additional support tools such as learning materials and tutorials to enhance your trading abilities.
Besides the above criteria, there are also a number of other important factors when choosing a broker that traders need to focus on. However, this is very subjective and depends from one trader to another. In conclusion, the bottom line remains that traders need to do their due diligence when it comes to choosing a forex broker. Every trader is unique and their trading preferences can vary.