Becoming successful at trading foreign currencies requires utilising the services of a good forex broker. You should not assume that each forex broker is the same. Differences in tools, charting, platforms and various procedures and functions create pronounced variations.
The unwary currency trader may find a forex broker with seemingly suitable trading conditions, functions and analytical tools, and still find them falling short of your needs and expectations with the trading software they offer. Researching the market thoroughly is then a minimum requirement to choosing the right FX broker - once selected the forex broker will be with you for the long haul, and be a profitable choice.
Tips for choosing the right FX broker:
- Account Variations - A currency trading broker will offer you account variations, based on the initial investment you are prepared to deposit into the account. These are often known as "mini" and "standard" forex accounts. Mini forex trading accounts can be opened with smaller deposits; sometimes less than $200. A more normal type of forex broker trading account requires a larger deposit; $500 - $1000 for example. Most broker accounts will also come with a free forex "demo account" too, where zero investment is required, and the learner trader can practice in a safe environment. Ideally, avoid the forex trading broker offering a mini account, as these tend to have reduced functionality, such as leverage - usually the currency broker is not mainstream or well-known, fully regulated and compliant or even 100% transparent.
- Trading Software Platforms - Forex charts, real-time quotes, trend graphs, exposure, profit/loss, required margins, open positions and much more, are all accessed through the trading software platform provided by your chosen forex broker. Ensure you find out what trading software is being used by the forex broker before you commit. Find out if it is friendly for the user (you) for example in terms of executing trades with one click, as the technology deployed by the forex broker is probably quite sophisticated. Most modern trading systems provide daily analytics such as reports, forex news, technical analysis plus support & resistance amounts.
- Using Leverage - A common feature with a forex broker, leverage enables the trader to use a credit system, to maximise profits. The FX broker provides a temporary "loan", which allows the trader to purchase the much bigger trades - which (assuming a positive outcome), produces equally large profits. Therefore a $500,000 trade requires an investment of just $1,000 when the deal leverage is 1:500. The trader should fully understand and be aware of the risks posed by leverage, as a losing trade also multiples the loss by the same amount as a winning trade.
- Spread Prices - Your chosen FX broker will earn their money on what is known as the forex spread. Very simply, the spread is the difference between the Buy and the Sell price, of the currency pair in question. A seasoned investor will be looking for a small spread - as a logical view is that a small spread offers a greater potential for profit. Spread is available in two types: Fixed and Various. A fixed spread remains constant during the day, whereas a various spread alters, according to forex market conditions. In order to earn a profit from a various spread, the market must move substantially in the favour of the market trader. Spread will also be affected by the account type you have with your forex broker; for example mini accounts often charge higher spreads than a standard account. Your research into finding a suitable currency broker will tell you which spreads are offered for creating an account.
- Technical Support - Clearly the forex broker you choose must be able to offer full and complete technical support for the trading system they offer; if there is a fault or where a question needs asking regarding a specific trade or transaction. Preferably support will need to be in your language too, so find a forex broker who can offer a multi lingual forex help support service, ideally 24/7. Most forex trading brokers will also have a presales department, live chat or call-me-back functions, so it should be easy to pose some questions in order to evaluate their effectiveness.
- Demo Account - Before basing a decision from the above points mentioned, a beginner trader should find a forex broker that offers a free demo account. Keep in mind that not all brokers offer demo accounts for practicing, but finding one that does makes all the difference. The benefit of a demo account means you trade with virtual money whilst practicing your strategies risk free. Not forgetting a beginner trader has the opportunity to familiarise themselves with the various trading conditions.
All point mentioned here are important and should be considered when looking for a forex broker, but always keep a look out for smaller incentives that may come up whilst doing your search. Still, there is enough information provided so a basic judgment can be made. At the end of the day there is nothing wrong with signing up with several different forex brokers and taking advantage of the various offers available.
This way you learn if your FX broker can aid you to become a successful trader in the long run.
