The Forex market right now is the world’s largest trading hub. It is so simply because of the number of options, transactions and sheer volume of currencies traded. It also works around the clock and is constantly in operation from Monday to Friday. Trying to figure out where to begin, how to trade and how to make these trades in a safe and profitable manner is not something that is easy or even simple to understand beyond the conceptual stages.
The advent of online trading is what has taken Forex to the next level, allowing anyone, in any part of the world to make trades. The process in general, however, can be made much more effective if you can find a good Forex broker. Here is a simple step by step on how to choose the right Forex broker, one that will work for you. There are literally thousands of brokers to choose from, some better than their peers, so do your research while keeping this guide handy.
Step 1: Look for a regulated broker
Regulation is important and is what keeps the trading world from going bust. It is also the main way to stop and reduce fraud. As Forex broking can be done at any place and at any time, look for a broker who is regulated. Ask for and go through a proof of regulation. The importance of this step cannot be stressed enough. Imagine you have a dispute with a particular trade and would like to make a complaint or take it up with the authorities, if they are not regulated, who are you going to call? Unregulated brokers have freedom to do whatever they please and you will have little to no legal protection on your side. If the broker is based out of the US, make sure they are registered with the NFA (National Futures Association) or the CFTC (Commodity Futures Trading Commission). Likewise, if they are based out of the UK, look for a FCA (Financial Conduct Authority) certification.
In addition to being regulated, choose a broker who operates out of a country or region that is known for strict trading and banking rules. If your broker is based out of the USA, for example, the law is designed to protect you. Getting away with fraud is not simple here, but if your broker was positioned in some sanctioned region or in a country with poor or non existent legal procedures, there are chances of you losing a good amount of money if things don’t work out. Think of it like this, would you take a vacation to the country, or feel comfortable opening a business there? That is how you should treat your trading decisions. Whole economies are going bankrupt, so a brokerage firm going out is not something that cannot or will not happen, so make sure you are legally protected before going in with your money. There is no real point in having a tight spread if your cash will not come back to you.
Step 2: What kind of account is on offer?
Almost every Forex broker will have a number of different accounts and types of accounts on offer. There will also be options on withdrawals, fees and other things, make sure you have details about the following.
There are many ways in which a broker can charge commissions, the most common of them being taking a small percentage off the spread. Spread can be defined as the difference between the ask and bid price of the traded currency pair. If your broker says that they do not charge commissions, they may be making money off widening the spread. A wide spread of, say three pips can be difficult to make a decent profit. A good spread will typically have a tight spread, especially for pairs that are traded often.
There are many Forex traders that allow for transactions as small as $50. The low amount is what makes Forex trading attractive to new comers. For the sake of safety and protecting your money, start small and gain leverage over time. There are mini, micro, and standard accounts available to start off with.
Deposits and withdrawals
The deposits and withdrawals policy of the broker is something that has to be seriously considered before you hire them. Methods of depositing are wide and varied, some traders even allow Paypal, credit card and ATM card payments apart from direct wire transfers. The more options available, the more convenient it will be for you as a customer.
Withdrawals are also to be noted. The issue with many brokerage firms is that they may not be explicit about the policy with regards to withdrawals and the fee that is charged. If you can, clarify any doubts that you may have on them beforehand. There will normally be a set amount that can be withdrawn and a small fee for drawing out money from the account. The money will either be wired or be mailed as a check.
Currency pairs traded
Forex trading deals with currency pairs. One currency is pitted against another and the difference over trading days brings about either a positive or negative gain. For this to work sustainably, the currencies used have to be stable and must be liquid. The major currency pairs that are traded around the world are EUR/USD, USD/JPY, AUD/USD, USD/CHF, and GBP/USD. It also does not mean that they are the only ones that you can trade with. As long as you do your research and are confident about a pair, it can be traded. Brokers typically have a wide range of different combinations when it comes to Forex pairs, but pick and choose ones that you are comfortable with trading.
Step 3: What trading platform is used?
A trading platform is like a software or a portal through which trades can be made. There is no one correct or wrong platform to trade with as there are many hundreds of good ones. The only left for you to find out is how big or long is the learning curve on the platform that the broker uses. Modern trading platforms are simple to use and are built to accommodate even novice users. There are, however a few things to look out for in a good trading platform.
First, the interface has to be clean and easily navigable, it may only be a cosmetic thing, but interface is as important as any other part of the platform as it involves user experience. It also need not be bright and filled with flashy colors as it can be distracting. A neat, readable and clear interface is what you are looking for.
Second, the number of statistics, metrics and dashboards that are available to you. While it is true that most trading platforms will have basic metrics to help you trade, there are some that make more insightful pointers and help you be sure of what you are doing. Add clear charts and interactive dashboards, you have for yourself a tool that is powerful and on point.
Third, look for levels of security and what traders call multiple eye checks. They act as gateways that will ensure you don’t make any errors as far as inputs are concerned. It is done by simply asking you, or the trader if they are sure and until you click on a positive acknowledgment, the trade will not go through. The Buy and Sell buttons should also preferably have such options for added safety. Not many platforms offer this, but look for a Panic button. It is nothing but a way to stop all transactions instantly. If you have made some mistakes or if the markets are moving in a way that is not good for you, you can immediately pull the plug on the platform, a stop loss mechanism.
Step 4: Compare
There are times when you look up a brokerage firm and decide right away that you work with them. That, however may not be the best way about this. Always look around and keep your options open. Compare, read reviews, visit websites that can offer a third party, outsider view of the firm. Some firms even offer demo accounts so that you can learn and get to know how they work.
Similar to the way you would purchase insurance or set up a mutual fund, shop around. You are bound to have questions and doubts, get them clarified. The biggest name in the industry need not necessarily be the one that works out for you, so don’t get blindsided by name brands.
Step5: How is the customer service?
Forex trading happens 24 hours a day, so your customer service should be always available to you. The biggest issue with having a platform that works all day and night is that the customer service must be as good. On the bright side though, most platforms have excellent customer service that is open through night and day. One thing you will have to know, however, is whether or not the customer service is automated or handled by actual people. Automated service can be difficult to work with and is almost always frustrating. That is because you are unlikely to have a query solved by pressing numbers and waiting for recorded voices to help you navigate through issues.
A person on the other end of the line, however, can be resourceful. Expert call handlers can take you through your requests and even patch you on with others in departments that are more equipped to handle your inquiries. I addition, small doubts regarding rules, platform related questions and updates of regulations from governments can also be gotten first hand. The best place to look for how good or lacking a firm’s customer service will be review sites. There are plenty online and some of them can give real insights into how the firm handles their customers. Take reviews with a pinch of salt, some customers cannot be satisfied and some may just be rash and rude. You can speak directly to your broker as well, find out as much as you can about customer service.
Just know that your returns initially may be a bit on the lower side and it takes persistence and getting to know the market better to slowly expand gains. If a broker claims a high return percentage every time, or if the numbers seem unreal to you, be wary. There are a number of scam artists out there, especially when they are based solely on online transactions. The market is difficult to regulate and because the brokers may be operating out of pretty much any country in the world, they may be impossible to track. Choosing a Forex broker is not something that should be taken lightly, put some time and effort into the process. It will literally be worth your money!