Choosing a Broker for Currency Trading

Online currency trading is offered by dozens of different individual trading brokerage firms operating from all over the world, so you have many options to choose from. Here are some key questions to ask when choosing a broker:

• How good is the trade execution? The key to evaluating any broker is the speed and reliability of executing your trades. Are you constantly able to trade at the price you are trying to achieve? If you are trying to sell, and your trade order fails, and you are offered a lower price, you will likely be re-quoted. (Reset effectively means that you are trading on a wider spread than you had hoped for.) Does your broker offer price improvement on limit orders? For stop-loss orders, the quality of the broker’s execution is reduced to the amount of slippage that occurs at the price gap after news releases or announcements. You should expect some slippage in the execution of your stop loss orders – the question is, “How much is that?”

 

• How are orders executed? Find out exactly how stop loss or take profit orders are executed. Is a stop loss sell order executed when the bid price matches the stop price, such as a sell stop at 10 resulting from a 10/13 bid? Are layovers guaranteed? If so, are there any exceptions to such guarantees? What is the policy for filling specific orders? Does the market bid price have to match the order price set to sell, for example? A reputable broker will have clearly defined order execution policies on their website.

 

• Are spreads stable in all market conditions? Most forex brokers offer variable spreads these days. When the market liquidity is high, the spreads are minimal. During volatile market conditions and around major news events, spreads will naturally widen. However, the amount of variance can vary between brokers, so make sure you understand how wide spreads can be when the market is really moving.

Look on the broker’s website to see if they publish their execution stats, which can give you more information about execution quality – including speed, percentage of successfully executed trade orders, and the chance of price improvement. Remember: tight spreads are only as good as the execution that goes with them.

• What is the commission structure? Most online forex brokers provide trade executions without charging commissions for the trade. Instead, the broker is compensated for the price difference between the bid and offer. Few brokers offer a commission based pricing structure coupled with tighter spreads. If the brokerage charges a commission per trade, you need to factor that cost into your accounts to see if it is really a better deal than the commission based on spreads.

 

• How much leverage does the company offer? Too much of a good thing? In the case of leverage, yes. Over the past several years, the maximum leverage available to retail traders has been lowered by regulators. For example, in the US, the maximum available leverage is 50:1. In some markets outside the US, such as the UK and Australia, a leverage of 200:1 is available. Generally, companies that offer very high leverage (higher From 200: 1) It does not look out for the best interest of its clients and, more often than not, is not registered with a major regulatory body.

 

• What trading resources are available? Evaluate all the tools and resources offered by the company. Is the trading platform intuitive and easy to use? What planning tools are available? What newsfeeds are available? Do they provide live market feedback on a regular basis? What type of research does the company offer? Do they offer mobile trading? Can you receive price alerts via email, text message or Twitter? Are there iPhone/iPad apps? Does the company support automated trading? Does the platform provide powerful reporting capabilities, including transaction details, monthly statements, profit and loss reports, etc.?

 

• Is customer support available 24 hours a day? Forex is a 24 hour market, so 24 hour support is a must. Can you reach the customer service company by phone, email, and chat? Are company representatives licensed? Familiar? The quality of support can vary greatly from company to company, so be sure to try it out first hand before opening an account.

 

• Is the company organized and has strong financial resources? In the US, online currency brokerage is regulated by the National Futures Association (NFA), a self-regulatory body under the supervision of the Commodity Futures Trading Commission (CFTC). Other geographies with strong regulatory frameworks include the UK/Europe, Australia, Japan, Hong Kong and Singapore – ideally, you should trade with a broker that is regulated by at least one of these regulatory agencies.

 

• Who runs the company? Management experience is a key factor, because the end user experience of a trader is dictated from above and will be reflected in the company’s dealing practices, execution quality, etc. Review employee resumes to assess the level of management and business experience in the company. If the brokerage doesn’t tell you who’s running the show, it could be for a reason.