It is truly incredible how times change. Eight years ago finding a good and efficient online broker forex trading was as hard as it gets. Today the forex brokerage industry has evolved to fit the needs of the individual forex trader. An increase in demand for online forex trading has generated an incredible competition between brokers. As a result, the private trader has benefited in terms of service and cost of trading. There are five general guidelines you should to know when choosing your forex broker.
1. Spread – This is your cost of trading the forex spot market. It’s the difference between the ask price and the bid price. Every currency quote will have these two numbers displayed so trader know at what price they can sell and at what price they can buy. This difference between the bid and the ask price is how forex broker make their money. Forex broker either offer a fixed or a variable spread. Fixed spread is guaranteed to remain the same regardless of market liquidity. Variable spreads change according to market conditions. They are tighter when liquidity is high but become larger when liquidity dries up. It is hard to come up with clear answer of weather to choose a fixed or variable spread broker. But it depends on your style.
2. Service – I consider service the most important element when choosing an online broker. When you are trading with real money you want to know that you count on your broker 24 hours a day. Be it through the phone or via email, you want fast and accurate solutions to your questions and needs.
3. Strong foundations – Your money will be in your brokers account and so you want security. You want to sleep well at night knowing that your funds are well protected and that there is no risk of you waking in the morning just to find out your broker has disappeared.
4. Guaranteed stop loss and limit orders – You should ask your potential broker what percent the overall stop loss and limit orders have been filled exactly as entered. Some brokers already have a monthly statistic regarding these numbers.
5. Connectivity – If you will be trading online than you will be placing your orders through your brokers deal station software. Some deal stations are downloaded to your computer and some are web-based. To ask your broker on average what percent of the month there is direct connectivity between their deal stations and their trading center. Anything less than 98% is not competitive enough. This is very important; you do not want to get stuck in the middle of a trade without connection.