When you consider the technological advances we have achieved over the past several years it’s no wonder there’s been an explosion in online currency trading. It is also no surprise that competition among various brokerages is fierce when it comes to advertising to win you as a client.
You should spend time researching the Forex Broker you are considering. Before you commit to choosing a broker spend some time researching the various and numerous firms available and think about the following questions to ask as you consider which firm is best suited to your particular needs. Some questions that come to mind include how our orders filled? Ask specifically how your stop loss or take profit orders will be filled. Find out if dealing spreads are Fixed or variable. This is an important question depending on your trading style. If you are a short term high-frequency trader you will want to aim for the tightest spreads possible. Or if your trading style is more along the lines of a more long-term style, spreads should not be the deciding factor when you are selecting your broker.
Another consideration when choosing a broker is to find out whether that broker is a market maker. Most online brokers function as this type of broker meaning that when you buy, you’re buying from the broker, and thus when you sell, you are selling to the broker. Market makers typically provide reliable and steady liquidity and execution enabling you to trade your desired amount at all times. Market makers offer either fixed spreads or variable spreads.
Fixed spreads remain constant all the time, regardless of what is happening throughout the market, and because of that fact brokers must assume additional market risk. When quoting a fixed spread over the entire trading day fixed spreads tend to be slightly wider than variable spreads. On the other hand variable spreads fluctuate depending on the market interest. For example if the New York session is closed and the Tokyo session hasn’t come fully on line, spreads tend to be much wider, while highly liquid periods such as the overlap between the London and New York trading sessions, spreads will be at their tightest. Leverage is another key factor to consider when choosing a broker. If the firm you’re considering offers excessively high leverage, they are likely not looking out for their customers’ best interests.
The Forex Broker you chose will depend on how much time and research you put into the effort. Time spent wisely now could save you making a costly mistake down the road.