With
currency trading becoming ever more popular, the number of brokers is growing
at a rapid rate. What should one look at when deciding which broker to open an
account with? These are the important points to consider.
Spread
Because
currencies, unlike futures and stocks, are not traded through a central
exchange, the spread can be different depending on the broker you use, so it's
well worth checking a few out before you open an account. Most forex brokers
publish live or delayed prices on their websites so you can compare spreads,
but check if the spread is fixed or variable. A fixed spread means exactly that
— it will always be the same no matter what time of day or night it is. Some
brokers use a variable spread, which might appear to be nice and small when the
market is quiet, but when things get busy they can widen the spread which means
the market must move more in your favor before you start to make a profit.
Fixed spreads are generally slightly wider than the variable spreads are when
at their narrowest, but over the long term fixed can be safer.
Execution
Some
brokers will show live prices on their trading platform, but will they honor
them when it comes to pushing the Buy or Sell button? The best way to find out
is to open a demo account and give them a test drive. This will also give you
the opportunity to see what the speed of execution is like — when you want to
buy, you want to buy now, not sit around waiting for ten minutes whilst your
order is confirmed!
Trading
Platform
Good
trading software will show live prices that you can actually trade at, not just
indicative quotes. It will offer Limit and Stop orders, and ideally will let
you attach these to your entry order. One-Cancels-Other orders are another
useful feature — they mean you can set up your trade and then leave the
software to get on with it. And the most important feature of all — can you
actually understand the platform? Having all the bells and whistles is of no
use if you can't use them, so again, get a demo account and give it a go.
Support
Forex is
a 24 hour market, so your broker should offer 24 hour support. You might not be
trading at 3am, but that could be what time it is in your brokers head office
on the other side of the planet, so make sure there will be somebody there to
pick up the phone if things go wrong. You should also check if you can close
positions over the phone — essential in case your PC or internet connection
crash at a critical moment.
Backing
Finally,
before opening an account do a little homework and find out about the company.
Forex brokers are regulated, but that doesn't mean they all have equal backing.
If the market collapses, you want to know that they've got the reserves to cope
with it and will still be around when you decide to withdraw your cash. If a
broker is elusive when it comes to questions about their parentage and
financial backing, then steer clear.
In
Conclusion
Choosing
a forex broker isn't difficult, but don't rush the decision. Check out a few,
and always get a demo account first to make sure you're happy with the way
everything works before sending off your opening balance.