The Forex market is the world’s largest financial market with a turnover in excess of around $5 trillion a day. Despite its huge size, this market has no central exchange for forex traders to conduct their transactions. Instead, forex traders must conduct their trading activities through an intermediary, the forex broker. This shows the importance of the broker’s role in the trading process. When it comes to choosing a broker, traders have literally thousands of forex brokers to choose from. To assist in selection process, a guide has been prepared with a list of key factors that you have to look for in selecting the best broker.
- Trading Platform & Software
- Commissions and Spreads
The major thing you should look at when selecting the best broker is to see if he/she is regulated by a competent regulatory agency. By trading with a regulated broker, you can have the assertion that the broker has met the operating standards imposed by the regulatory body. Some of these standard regulatory requirements include having adequate capitalization and maintaining segregated accounts in order to protect the clients’ funds.
2. TRADING PLATFORM AND SOFTWARE:
As the trading platform is your gateway to the market, you want to ensure that the trading platform that you are using can be relied upon. Best brokers will offer traders a selection of trading platforms to choose from. Most of the time, the trading platforms are provided by third party trading solutions. There are also some, who have taken to developing their own proprietary trading platforms in an attempt to differentiate themselves from others in the industry. Often times, these proprietary platforms are the best platforms to trade with as they are specifically designed by the client base.
The additional features include:
- Comprehensive charting package
- Wide range of technical indicators
- One click trading on the trading platform
- Risk management tools such as stop loss order and trailing stops.
But when it comes to platform selection, it is really a matter of personal choice. Most of these platforms will have the same basic features. The perfect way for you to find out which platform is right for you is to try them out with a demo account. For those who do not provide a demo account, they may not be worth considering.
3. COMMISSION AND SPREADS:
This market unlike other traditional financial markets mostly operates on spreads rather than commissions. This is the acumen why most brokers advertise their services as being commission free.
THREE KINDS OF TRADING COST STRUCTURE
In forex trading, there are 3 kinds of trading cost structure:
1. Fixed spread: This is a situation where the spread is not changing and you know the spread amount before you trade.
2. Floating spread: This spread is irregular and always moving based on the market volatility.
3. Commission fee: This is calculated as a percentage of the brokers spread. You should be aware of the amount payable before you trade.
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.