Forex Brokers: Finding The Right One In A Crowded Marketplace

Forex Brokers: Finding The Right One In A Crowded Marketplace

by forexrobot on March 10, 2010


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Forex trading companies have become plentiful since the explosion in retail forex trading. There are currently hundreds you can pick from, domestically and in other countries. What criteria should you consider when picking a broker to trade foreign currency ? You can conduct your own forex broker comparison putting their features side-by-side.

First, look at the spreads on major currencies – and the ones you’re apt to trade. These spreads should be competitive. Bear in mind, the spread is the difference between the buying and selling price, the bid and the ask. This is where foreign currency trading companies earn their revenue, not on commissions as stock trading companies charge. On a common pair as in the EUR/USD you shouldn’t have a spread larger than 2 pips. Some trading companies, in an effort to slice it even closer, are offering fractional pips such as 1.8 – or they’ll say “as low as 1 pip”. Critical to remember: spreads will always rise in times of greater volatility such as thepublication of a major news announcement.

Second, check to see if the brokerage utilizes a dealing desk. There are a number of advantages to using a brokerage that does not make use of a dealing desk: there is no conflict of interest – brokers do not trade against their customer; each trader is offered the same access to the interbank market; trading is completed secretly – your broker remains ignorant of your trades, your stops or your profit targets. Non-dealing-desk trading companies are typically thought to be fairer towards their clientele.

Third, are your orders carried out swiftly and at the levels you spell out? If you put a stop loss is it honored? I’ve seen some trading companies say, “Your stop didn’t take you out because the market was moving too quickly”… This is something to avoid.

Fourth, see if their customer service is high-quality. When you contact them can you speak with areal person immediately? Are you on hold indefinitely? Do you have to battle through a bunch of computerized menu selections? Is their staff able to respond to your questions knowledgeably?

Fifth, open a demo account and trade. Do you enjoy using the platform? Do they offer the one you want? Is there good training and education accessible? What other services are available – market analysis, indicators, trading signals, forums, live trading rooms.

Lastly, do a general Google search. What is the popularity of the company? Look into a few forums…nearly all will have discussions of brokers. How do other traders feel about the one you’re looking at?

Deciding on the proper broker can be fundamental to your trading profitability. It’s a good idea to check around and see what each offers. There are a lot of sites that offer side-by-side reviews. Use demo accounts to see how they actually work. You may not find one that meets all your desired features, but many do a good job of providing dependable service to the foreign currency trader.

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