There are a number of factors to consider when choosing a Forex and CFD broker which can have an impact on both the way in which you conduct your trading and more importantly the results that you achieve.
The Forex and CFD broker that you ultimately chose to use for your trading will, first and foremost, need to meet all of your trading needs. This will of course depend upon your specific requirements, which will naturally vary from trader to trader. Areas that you will need to be consider include among others, the markets you intend to trade, the strategies you intend to use and of course your level of trading experience.
5 Key Factors to Look for When Choosing a Forex and CFD Broker
Here are the key areas that that you should think about when selecting your Forex and CFD broker:
Forex Brokers Reputation
This maybe an obvious one but if the broker has a poor reputation amongst traders then there is likely to be a good reason for it. You can find out what other traders think of a broker by reading reviews or visiting Forums to find opinions. This can often reveal information that you would not have access to without opening an account, such as the reliability of their platforms and the level of customer service provided.
Of course just because a broker has not worked out for one trader it may still work for you. However you will often find that certain brokers are more favored by traders than others. This step can save you a lot of time, allowing you to quickly build a shortlist of brokers to investigate further.
At this time it is also worth checking on the regulatory status of the broker. Regulated brokers offer some protection to any funds that you deposit with them. You will be backed by a compensation scheme for any funds deposited with the broker which is an important consideration in today markets.
Brokers Trading Spreads
The spreads offered by the broker represents the level of commission that they take for each order conducted for you. Over time a high fixed and variable spreads can eat into your trading profits and therefore will reduce your returns.
It is important that you gain good spreads for the currency pairs you intend to trade. If you want to have the security of ‘fixing’ the spread, then expect to pay a little more than with a broker that offers a variable spread. However fixed spread brokers will guarantee that you will pay no more than the advertised level, no matter what the prevailing market conditions are.
Broker Account Types
Most Forex brokers offer a range of account types. Often brokers’ most prestigious accounts will offer the best spreads and levels of execution. However these accounts will often require high minimum deposits which can be prohibitive when you first start trading.
Increasingly however, many forward thinking brokers have started to introduce ‘Micro’ accounts. These allow you to trade with a smaller ‘lot size’ than regular accounts. The net effect is that you can now trade strategies effectively with just a modest deposit while still balancing risk.
The features of Micro accounts have improved rapidly and now tend to be on a par with their Standard cousins. These are particularly suited to those who are first starting out and can be opened in some cases with less than $100.
Leverage in Forex is the ratio between the amount of capital that you deposit in your trading account and the actual amount you have available to you when trading on the currency market.
Capital that is made available for trading and the actual capital that you have on your trading account. In most cases leverage will start at around 50:1 but can be offered as high as 500:1 with many brokers. It represents the amount $1 can trade for you in the market. So for example with a $1 position with a 200:1 leverage would actually be controlling $200 for you in the market.
However simply looking for the highest leverage is not a route you should pursue. It can work both ways with a high leverage also having the ability to blow your account very quickly.
Funding Your Forex Account
There are two things you need to think about when funding and growing a small Forex trading account.
The first is how you want to do this. Many brokers now offer a range of funding methods covering most credit and debit cards. Alternative more popular funding methods offered by some brokers include Pay Pal, e-Bullion and Western Union.
The second thing to consider is the currency you want to hold your funds in. Most brokers allow you to operate your account in dollars. However if you want to operate your account in other currencies then your choice of broker will be more limited. If you are unsure about the account operating currencies on offer then contact the broker.
In this short guide, we have covered some of the key factors to consider when choosing a Forex and CFD broker. Once you have a shortlist of candidates your next step is to make use of the free demo trading accounts offered in order to try them out.