by Susan Paige
If you want to become a long-term profitable forex trader, it is important to use a broker that is suitable for your needs and your specific trading strategy. Having a broker and a trading account that is unsuitable can turn an otherwise profitable strategy into a money pit.
When you compare the costs of a broker, always take a look at the whole picture – and what using your particular trading strategy will cost. Look at fixed commissions, percentage commissions, spread, deposit fees, withdrawal fees, etcetera.
Below, we will take a look at a few other things that are good to keep in mind when comparing forex brokers.
What do you want to trade?
Which currency pair or pairs do you want to focus on, and is this broker offering great terms and conditions for trading these specific pairs?
Which type of trading do you want to do? Are you interested in traditional spot trading, Contracts for Difference (CFDs), currency futures contracts, swaps, options, or something else? Deciding exactly what you want will make it easier to find the right broker.
How do you want to trade?
Some brokers prohibit certain trading strategies, while others are simply unsuitable for such strategies.
There are for instance brokers that prohibit scalping, hedging and automated trading. Make sure you pick a broker that allows the strategy you plan on using. Ideally, pick a broker that doesn´t just allow it but embraces it and is willing to provide you with tools and support to carry it out. There are for instance brokers that actively promote automated trading, copy trading and similar, so there is no need to pick one that is against it.
How much do you want to risk?
It is common for retail hobby traders to start small. If your plan is to make a small deposit and trade tiny lots, make sure you pick a broker and a trading account type that is suitable for this. You want a broker that allows small deposits and where you can make small trades. It is important that you can carry out adequate risk spreading, and that is not possible if you have to risk a large chunk of your total bankroll on each individual trade.
Test the platform using play-money
Before you make any real-money deposit, we recommend you test the trading platform risk-free using play-money. Most forex brokers will allow you to get a free Demo Account and they will fill it with play-money to make it possible for you to test-run the trading platform without risking any real money.
This is a great way to find out if you like the trading platform, learn how it works and avoid costly beginner mistakes. Do not make any first deposit of real money until you know for sure that you like the trading platform and what the broker has to offer.
Important: If you plan on trading on your mobile device, make sure the trading platform works well on a small touch screen instead of just testing it on your desktop computer. Many brokers offer a special mobile app that you can download. The app typically works better than simply opening the platform in the browser window on your smartphone or tablet.
- Does this broker accept a transaction method that you are comfortable with using, and that wont cost you a lot to utilize?
- Is that transaction method available for both deposits and withdrawals?
- How big is the minimum deposit?
- Is the broker charging deposit and/or withdrawal fees? If so, are you allowed to make a certain number of transactions per month without paying the fee?
- How do you prefer to reach the customer support, and is this method available? Some traders prefer phone support, while others like live chat support or email support better.
- If the broker only offers email support, you will not be able to get real-time help, which is a downside in some situations.
- If phone support is important to you, check if there is a local number or if you will be required to make a potentially expensive phone call abroad. Note: Some brokers offer call-back service. You send a message to them via live chat or email, and the support will call you instead of the other way around. That way, you don´t have to pay for the call.
- Is support available in a language that you are okay with?
- When do you normally trade and does this match the opening hours for the support? If the support is closed when you normally trade, you will not be able to get help quick if sometime goes wrong.
- Does the customer support for this broker have a good reputation among the traders online?
For most small-scale hobby traders, the best course of action is to keep it simple. Avoid complex situations where you are trading from country in Europe, the broker company is based in Central America and the license is from an island nation in the Pacific Ocean. If you are trading from within the European Union, pick a broker that has a legal presence in at least one EU membership country and a license from that country. If you are trading in Australia, pick a broker that has a legal presence in Australia and is licensed by ASIC, and so on.
What is the difference between ECN brokers, STP brokers and DD brokers?
ECN = Electronic Communications Network
STP = Straight Through Processing
DD = Dealer Desk
ECN brokers and STP brokers are your link to other traders. These brokers will take your order and send it to a market where it can be matched with an order from another trader. DD brokers are instead market makers. When your order is matched, it is actually the DD broker that is your counterpart in the transaction.
ECN brokers and STP brokers typically make most of their revenue from charging a commission on each trade. DD brokers normally make the bulk of their profits from the spread.