Choosing The Best Forex Brokers – 5 Tips To Finding The Best Forex Brokers

As a forex trader, your forex broker is your main connection to the forex market. Without a broker, you literally can’t trade forex at all. Choosing the right forex broker for the job is one of the most important decisions that you must make as a new forex trader. With so many brokers out there, what do you look for? In this article we are going to look at 5 tips to finding the best forex brokers.

A forex broker acts as an intermediary between the trader and the market, they execute your trades and show you real time price data. The broker makes money by charging a fee for carrying out trades. This can either be in the form of fixed commission per trade or more commonly using a spread (taking pips from every trade). Your broker will deliver a forex trading platform, which is the graphical interface you use in your trading.

Who should you go with? There’s hundreds of brokers out there and you naturally want to find a trustworthy, cheap and reliable broker. Let’s look at the top 5 things to look for when you’re evaluating a broker.

1) Spreads

Most brokers use a spread based fee structure where the broker charges an additional few pips (the smallest possible change to the value of a currency pair) to the spread (the difference between Bid (Buy) and Ask (Sell) prices. So, that means that lower spreads is naturally better. The lower the spread the cheaper the trade. Low spreads are very important if you plan on using a scalping strategy, because the profit taken from many small trades may not be more than a few pips a trade, so if the broker is also taking a few pips, then that doesn’t leave much left for you! You should also look for a broker that has fixed spreads. Fixed spreads means that the spreads, stay the same during all market conditions. Many brokers change their spreads during heavy trading, such as on news releases, to avoid losing money from a fast moving market. While there’s nothing wrong with that, it does open up for shady brokers to widen the spread by too much. Shady brokers may also sometimes engage in what is known as stop-loss hunting, where the broker widens the spread to trigger a stop-loss limit order. The best forex brokers will use none of this.

2) Minimum Account Deposits

How much do you need to deposit in order to trade? Most brokers now offer mini and even micro accounts that will let you trade for as little as $100 or even less. The big brokers on the market, such as Saxobank requires up to $5,000 to even consider a trader. There are however many brokers better suited for retail traders. It’s usually recommended to deposit at least $1,000 when trading forex, though this is probably a bit to conservative as with mini accounts and mini lots (the number of units traded), it’s possible to trade with considerably less.

3) Execution of Orders

Execution of orders is another very important thing to look for. The forex market is very liquid, it moves very fast! Getting in and out of the market fast can mean the difference between profit and loss. Slippage is the term used when you can’t fill your order at price you specified. This can happen because the market moves to fast or because the broker is lazy! Many brokers are market makers, they keep their own stock, and can therefore fill orders instantly. Look for a forex broker that can execute your orders smoothly.

4) Technical Analysis and Charting

Your forex broker should have a platform with charting and technical analysis. Gone are the days of manual calculations. Today, all brokers worth a damn offer extensive technical analysis, charting and plotting. The data shown to you on the charts should be up to the second and not lag or skip. Look for a broker with a nice clean graphical interface that let’s you customize easily.

5) Leverage

Leverage is the x-factor in forex. Where else can you trade for up to $400,000 for only a $1000 deposit? That’s right, nowhere! Leverage is when you borrow money from your initial deposit or open positions to increase your holdings. Using leverage is what makes forex trading exiting. Don’t go overboard though, leverage works both ways. Look for a broker that offers good leverage.

So, let’s recap, the 5 most important things to look for are: