Choosing Professional Forex Brokers

Forex Brokerage

These are some very important factors that every trader should consider before opening a new Real Forex Trading Account.

Here are the 5 factors at a glance:

(1) Suitability of the available trading accounts (lot sizes, minimum deposit, etc.)

(2) Cost of Trading (trading spreads & commissions)

(3) Margin Policy & Rollover Rates

(4) Execution Efficiency & Technology

(5) Safety of Funds & Regulation

 

Each of these 5 crucial factors is divided into a number of sub-factors, as follows. Here is an Analysis:

 

(1) Suitability of the Trading Account

 

1.1 What is the minimum deposit required to open an account?

Usually, the minimum deposit for opening a simple trading account is from $10 to $250. ECN accounts require a higher initial deposit, usually $250 to $2,000.

1.2 What are the available Deposit / Withdrawal Methods?

All brokers support Bank Wire and Credit Cards. Some brokers support also internet wallets such as Paypal, Skrill, Neteller, etc). Another issue is if the Forex Broker allows you to withdraw money using the same method only as of the one you have selected when deposited funds.

1.3 What is the minimum lot size?

Get informed about the lot sizes. In other words, if that particular Forex Broker provides a mini lot size account which is ideal for Forex Beginners.

1.4 Is there any interest earned for the unused account funds?

99% of all Forex brokers don't offer interest on your unused capital.

1.5 Is there a Demo Account Available?

Every broker that respects his clients must offer a Demo Account. Using a Demo before opening a Real Trading Account is absolutely important for every Forex Trader. As I like to say a Demo account offers a trading experience for free.

1.6 Are there any Forex Bonus / Trading Rebates available?

It is far better to concentrate on finding a good and reliable Trading Rebate Program than to seek for a Forex bonus. ECN brokers usually don’t offer a trading bonus, instead, they offer sometimes a trading rebate. In order to join a rebate plan, you must find an IB. Forex-rebates.com cooperates with dozen of Forex Brokers and may help you joining a good Forex Rebate plan for free.

 

(2) Cost of Forex Trading

 

2.1 What is the spread on your Favor Currency pairs –is it Fixed or Variable?

In general, EUR/USD, USDJPY, and GBP/USD offer the narrowest spreads for trading. On the other hand, minors, are traded on extremely high spreads and that makes them unsuitable for day-trading. Another parameter concerns the type of trading spread. Some Forex brokers offer trading accounts with fixed spreads, others with variable spreads. Focus on the currency pairs that you will probably trade most and find which brokers offer the best trading conditions. You can use also multiple trading accounts and take advantage of more brokerage choices at the same time.

2.2 Are there any trading commissions?

Usually, trading commissions are charged only by ECN and STP brokers. Some ECN Brokers even offer zero (0) spreads and make profits only by charging trading commissions. On the other hand, Market Makers don’t charge commissions, but they charge very wide spreads (EUR/USD at 1.6 minimum) while the execution is usually slow and there is slippage.

2.3 Are there any other charges?

Other charges may be incurred on withdrawals or on maintenance (not-active fees).

 

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(3) Margin / Rollover Rates

 

3.1 What is the Leverage / Margin Requirement of that Broker?

If a Forex Broker has a margin requirement of 2% then he offers leverage 50:1 (100% / 2%)

3.2 Do Margin Requirements change for different Assets?

You must be sure about the margin requirements on the currency assets that you are particularly interested in.

3.3 What is the Rollover Policy (SWAP Rates) of that Forex Broker?

This is very important for those traders maintaining their positions overnight (swing traders, position traders, carry traders, long-term traders)

At this point, you must answer questions concerning:

3.3.1 What are the particular SWAP rates for the particular currency pairs that you are interested in?

3.3.2 Are these SWAP rates negative or positive?

3.3.2 Are these SWAP rates better or worst than the rest of the market?

 

(4) Order Execution Efficiency

 

4.1 What is the Forex Broker execution model (ECN, STP or Market Maker)?

In general professional traders trade only with ECN/STP brokers which offer direct access to key liquidity providers.

4.2 Are there any delays in execution/price manipulation?

ECN brokers perform better in terms of execution speed without any price manipulation.

4.3 Which Trading Platforms are Available?

MetaTrader4 is the Forex industry’s standard. Usually, most brokers offer a Web-Trader too. In addition, mobile trading is offered by most brokers nowadays (apps for Android, iPhone, and iPad).

4.4 Is Automated Trading an Option?

Automated Fx trading using Expert Advisors has become considerably popular nowadays (popular signal providers include ZuluTrade and Currensee).

4.4 Does that Forex broker allows Scalping?

In general, most ECN brokers are fully allowing scalping and most Market Makers don’t.

4.5 Additional Trading Features

There are many additional features making trading easier. For example trading from charts, one-click-trading, free VPS hosting, etc.

 » FAQ for Forex Traders

Create your own customized automated systems: » EA Builder Review

 

(5) Safety of Your Funds

 

5.1 Is that Forex Broker Regulated?

It is absolutely important to choose only among high regulated Forex Brokers. Some trustable regulation authorities are FCA UK, ASIC Australia, BaFIN Germany, FSA Japan, CFTC USA, CySEC Cyprus, etc.

5.2 Where is the Forex Broker headquarters base?

Generally speaking, it is better to choose among Forex Brokers that are situated in developing countries and not those who are situated in offshore countries where the legislative framework is more flexible in favor of the Brokerage Firm.

5.3 Compensation Scheme

Check always what will be the compensation in case of your broker's insolvency. For example, the FCA UK (FSCS scheme) offers 50,000 GBP.

 

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Rating Forex Brokers using all the Above Factors

In order to define the quality of a Forex Broker using multiple factors a mathematical model was formed “Rating Formula”. This formula uses 4 factors to rate brokerage services:

(1) Safety of Funds | (2) Trading Cost | (3) Trading Options | (4) Technological Efficiency

Here is the version history of the Rating Brokers Formula:

» Rating Forex Brokers Formula –V.4.0.

 

Find more » Forex Trading Tips | » Fx Market Statistics | » Forex Trading Guide |  » Forex FAQ for Traders

 

Choosing Professional Forex / CFD Brokers

Giorgos Protonotarios, Financial Analyst, FxPros.net

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