If you’re thinking of signing up to a forex broker for the first time, there are a few things that you should know and some that you should look out for on the broker’s site before committing yourself. These days, forex brokers generally work through websites where you can buy or sell currency pairs. You can then make a profit as the relative value of the currencies fluctuate due to global economic currents. The forex (foreign exchange) market is worldwide, open 24/7 and has a massive trading volume, with over $4tn changing hands daily.
What they do
The role of a forex broker is to execute transactions on your behalf, to hold your money in a secure account, handle fees and commissions and keep track of your profits and losses. They may also provide access to expert advice, educational materials, trading tools and other resources. To some extent, your choice of broker will depend on what you want out of forex trading, and what type of tools and services you might need.
Before signing up, you need to know what kind of a trader you are. What are your goals? What is your budget? Do you want to keep things simple, executing low-risk trades on a casual basis, or do you want to work hard, taking full advantage of the latest charts and tools for analysis and prediction? The answers determine what services you require from a broker and will start to narrow the field of choice. If you want to trade specific currencies other than the most commonly-offered pairings, then you should make sure that a broker offers them for trading.
Reputation and regulation
Always check a broker’s reputation. You can do this by looking them up on independent review sites and websites that compare forex brokers. An appropriate overseeing body should regulate the broker. The official regulators in different countries will have a website where you can look up a particular broker to make sure that they’re compliant. You can also check whether they’ve received any complaints or disciplinary actions against them.
Count the pips
Most brokers don’t charge any commission but make their profit on the spread. That is the difference between the ask price (the price you buy at) and the bid price (the price you sell at). The difference between the two is measured in pips (percentage in points). Obviously, you should look for a broker with a competitive spread, one that is as small as possible, although that is far from being the only factor you should consider.
Some brokers are not upfront about the fees that they charge, so take your time reading through the small print. Things to look out for include withdrawal fees, the procedure for closing your account and the account minimum. Understanding financial terms and definitions will help you ensure you’re being treated fairly.
Tools and features
If you are new to forex trading, choose a broker that offers a demo account so that you can practice trading without risking real money. A social trading option is also handy, meaning that you can follow and imitate the trades of more experienced traders, as well as picking up invaluable tips and advice in the social hub. A trader should also offer real-time news, charts and market data and integrated technical analysis tools.
Make sure your chosen broker has a platform that is suitable for your needs. A stand-alone platform offers the most features and flexibility: the industry-standard platform is MetaTrader, and ideally, your broker should provide the latest version. Web-based and mobile platforms have fewer features but are more convenient for some traders.
Understanding as much as possible about forex trading before you begin will help you make the best choice when it comes to a broker. Look for security, reliability and value, as well as a wide range of features. Even if you don’t use them right away, you may be glad of them as you gain experience.
Find out more about trading forex in our ranking of the best forex trading books.