A Forex Broker
by Geoff Turnball
With currency trading becoming ever more popular, the number
of brokers is growing at a rapid rate. What should one look
at when deciding which broker to open an account with? These
are the important points to consider.
Because currencies, unlike futures and stocks, are not traded
through a central exchange, the spread can be different
depending on the broker you use, so it's well worth checking
a few out before you open an account. Most forex brokers
publish live or delayed prices on their websites so you
can compare spreads, but check if the spread is fixed or
variable. A fixed spread means exactly that - it will always
be the same no matter what time of day or night it is. Some
brokers use a variable spread, which might appear to be
nice and small when the market is quiet, but when things
get busy they can widen the spread which means the market
must move more in your favor before you start to make a
profit. Fixed spreads are generally slightly wider than
the variable spreads are when at their narrowest, but over
the long term fixed can be safer.
Some brokers will show live prices on their trading platform,
but will they honor them when it comes to pushing the Buy
or Sell button? The best way to find out is to open a demo
account and give them a test drive. This will also give
you the opportunity to see what the speed of execution is
like - when you want to buy, you want to buy now, not sit
around waiting for ten minutes whilst your order is confirmed!
Good trading software will show live prices that you can
actually trade at, not just indicative quotes. It will offer
Limit and Stop orders, and ideally will let you attach these
to your entry order. One-Cancels-Other orders are another
useful feature - they mean you can set up your trade and
then leave the software to get on with it. And the most
important feature of all - can you actually understand the
platform? Having all the bells and whistles is of no use
if you can't use them, so again, get a demo account and
give it a go.
Forex is a 24 hour market, so your broker should offer 24
hour support. You might not be trading at 3am, but that
could be what time it is in your brokers head office on
the other side of the planet, so make sure there will be
somebody there to pick up the phone if things go wrong.
You should also check if you can close positions over the
phone - essential in case your PC or internet connection
crash at a critical moment.
Finally, before opening an account do a little homework
and find out about the company. Forex brokers are regulated,
but that doesn't mean they all have equal backing. If the
market collapses, you want to know that they've got the
reserves to cope with it and will still be around when you
decide to withdraw your cash. If a broker is elusive when
it comes to questions about their parentage and financial
backing, then steer clear.
Choosing a forex broker isn't difficult, but don't rush
the decision. Check out a few, and always get a demo account
first to make sure you're happy with the way everything
works before sending off your opening balance.
Geoff Turnbull is a full time day trader, and a contributor