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How to Choose the Best Forex Broker

written by: Steve McFarlane•edited by: Laurie Patsalides•updated: 9/10/2011

Trading the Forex market is an exciting career option. But how do you choose the right Forex Broker? This article highlights the things you need to be considered, when choosing a Forex broker.

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    Forex traders have more than 50 brokers to choose from, but choosing the best one can be challenging for the uninitiated, especially considering the wealth of features and services that brokers can offer. However, with the sure fact that a broker’s fee structure, software offerings, and general service levels can seriously affect a trader’s profitability, picking the right Forex broker is of utmost importance.

    Here are some things to consider when choosing the right forex broker:

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    Trading Spreads

    The trading spread is the difference between the ‘bid’ and ‘ask’ prices (buying or selling prices), of a trading instrument. Since forex profits and losses are measured in terms of pips, lower spreads translate into lower trading costs and more profits. For example, the cost of entering a 100,000 unit trade, with a spread of 1 pip, is $10. In contrast, a 100,000 unit trade, entered when the spread is 3 pips, would cost $30. Some brokers may vary their spreads on holidays and during news releases, depending on market liquidity. Shop around for the best trading spread, as they can vary greatly between brokers.

    Broker Registration and Regulation

    Ensure that the broker, you are considering, is registered with a regulating authority such as: The National Futures Association (NFA), The Commodity Futures Trading Commission (CFTC), or The Financial Service Authority (FSA). These regulating agencies see to it that its members abide by the rules that safeguard the market's integrity and protect investor interests.

    Charting Package and Features

    Does the broker offer a charting package that has the features and technical indicators you will need to execute your trading strategy? If the features you want are not provided by the broker, you may have to pay for an add-on charting package. Choose a broker that has the full package with what you want, so you will not have to spend extra.

    Leverage

    There is no right or wrong answer for this one. Generally speaking, trading with high leveraging is risky, but this is entirely the call of the trader. If your trading strategy calls for a 100:1 leverage, then you should ensure that any prospective Forex broker offers that leverage. If you don’t want to be tempted to use high leveraging, then you might want to go with a broker who has a maximum leverage of say, 20:1.

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    Minimum Amount to Open an Account

    Up until the 90s, Forex trading was only open to institutions and individuals with deep pockets. But today, some Forex brokers will allow traders to open trading accounts with as little as $1. Still, others may have deposit requirements that are well into the tens-of-thousands. Don’t waste your time doing research on a broker, whose minimum deposit requirement you can’t make. In some cases, the minimum deposit requirement may depend on whether you are opening a ‘Mini’ or ‘Standard’ account.

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    Mini accounts – Some brokers mandate that you open a mini account if you want to trade less than, say, $2,000. These accounts usually offer higher leverage, to compensate for the relatively low gains that can be expected from working with a small capital. You will be asked to upgrade your mini account to a standard one, when you grow your balance to a significant amount.

    Standard accounts – These are, “the real McCoy." The minimum starting capital, for standard accounts, is higher than that for mini accounts, and they usually offer less leveraging.

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    Minimum Trade Sizes

    Some brokers only allow lot size trades (100,000 units). To trade that figure safely, you will need a significant amount of money, especially if you are not using a lot of leveraging. Still, others brokers allow you to trade whichever size you wish, even one unit. It is also important to check if the broker charges a fee to execute small trades, most don’t, but be sure you understand the deal.

    Demonstration accounts or "demo accounts"

    Demo accounts allow you to test the trading platform and environment before you take the plunge. Demo accounts are setup with fake money of course. They are a great way to experience live trading, without risking real money. Seasoned traders may also use demo accounts to develop and back-test new trading strategies, before they risk real money in trading that strategy.

    Rollover Interests

    This is the amount that you receive or pay, if you hold a trade overnight. The rollover interest is the net of the interest rates of the currencies being traded. For example, if Australia’s interest rate is 4% and the US 1%, holding a long trade on the AUD/USD will net 3% pa. There are even some brokers who will calculate this interest on a per second basis. Interest payment might not be much, when compared to the gains that can be realized from the movement of a currency itself. Interest payments or gains can become significant, especially when trading currency pairs with large interest rate differences, i.e. carry trade pairs.

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    Miscellaneous and Hidden Fees

    Ensure your broker doesn’t make you broke, by being aware of the many ways they can extract money from you. It is no secret; Forex brokers get most of their revenue from charging fees. Make sure you understand all the fees your broker could charge you. Some of these include fees for:

    • News services
    • Not making the minimum number of trades within a given time period.
    • Account maintenance
    • Minimum balance
    • Advanced charting package.

    Account Deposit Options

    Does the broker accept deposits by: paper check, PayPal, wire transfer and credit and debit cards? This might really be a matter of convenience, but in other ways it can determine how much it costs to transfer money in and out of your trading account. Using credit cards maybe a convenient way to get money into your trading account, if you broker offer this option.

    On the other hand, it can become expensive to deposit a large amount into your trading account using a credit card, especially when compared to the flat fees that are charged for doing wire transfers. Still, using Paypal or credit cards might be the cheapest option, if a small amount of money is being transferred.

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    Mobile Trading Facility

    Do you want to check your trades while you are away from your desk? Having a mobile trading feature is an essential tool for serious traders. Whether or not you will be making major trading decisions while on the road, knowing that you can check on the market at any time, can give you peace-of-mind.

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    Before You Make a Decision

    Before you commit to a broker and open a live trading account, sign up for a demo account. This will give you a true sense of how to deal with the broker, and what the trading platform is really like. In most cases, demonstration accounts act just like real trading accounts. If you are new to Forex trading, a demo account or Forex simulator can really help you learn how to trade the Forex market.

    You may also want to explore trading forums, to learn the issues traders may be having with a particular broker, or to seek answers to lingering questions.

    For more tips and strategies, be sure to check out the other items in Bright Hub's Collection of Forex Trading Guides.

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    Top 10 Forex Brokers

    It is important that you do a broker comparison; this will help you to find which ones standout, based on you preferences. The following is a list of brokers that are generally considered to be the top 10 Forex brokers.

    Deutsche Bank (DB FX)

    Minimum Deposit - $5000

    Maximum Leverage - 100:1

    PayPal Deposit - No

    Credit Card Deposits - No

    Mobile trading - No

    Automated Trading – No

    MIG Investments Minimum

    Minimum Deposit -$5000

    Maximum Leverage -200:1

    PayPal Deposit - Yes

    Credit Card Deposits - Yes

    Mobile trading - Yes

    Automated Trading – Yes

    IG Markets

    Minimum Deposit - $1

    Maximum Leverage -700:1

    PayPal Deposit - No

    Credit Card Deposits - Yes

    Mobile trading - Yes

    Automated Trading – Yes

    FX Solutions

    Minimum Deposit -$250

    Maximum Leverage - 400:1

    PayPal Deposit - Yes

    Credit Card Deposits - Yes

    Mobile trading - Yes

    Automated Trading – No

    Alpari (UK) Ltd

    Minimum Deposit - $1000

    Maximum Leverage - 500:1

    PayPal Deposit - No

    Credit Card Deposits - No

    Mobile trading - Yes

    Automated Trading - Yes

    Interbank FX

    Minimum Deposit -$250

    Maximum Leverage - 400:1

    PayPal Deposit - No

    Credit Card Deposits - No

    Mobile trading - Yes

    Automated Trading – Yes

    OANDA

    Minimum Deposit -$1

    Maximum Leverage - 50:1

    PayPal Deposit - Yes

    Credit Card Deposits - No

    Mobile trading – Yes

    Interactive Brokers

    Minimum Deposit - $10000

    Maximum Leverage - 40:1

    PayPal Deposit - No

    Credit Card Deposits - Yes

    Mobile trading - No

    Automated Trading – Yes

    ThinkOrSwim

    Minimum Deposit - $3500

    Maximum Leverage - 100:1

    PayPal Deposit - No

    Credit Card Deposits - No

    Mobile trading -Yes

    Automated Trading – Yes

    CMS Forex

    Minimum Deposit - $200

    Maximum Leverage -100:1

    PayPal Deposit - No

    Credit Card Deposits - No

    Mobile trading - Yes

    Automated Trading – No

    Automated Trading - No

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