There are hundreds of online forex brokers offering their platforms to CFD traders. The quality, reliability and trustworthiness of these brokers ranges from excellent brokerages that are on a par with major financial institutions, to average brokers that provide a reasonably good service, and to outright scams that should always be avoided. It can be a challenge to find not only a top class broker, but one who is ideal for your individual requirements.
How Brokers Execute Your Orders
In the past, brokers usually used a dealing desk to determine pricing and execute orders. They also used fixed spreads for convenience. Another limitation is that some brokers will restrict trading activity during periods of extreme market volatility. This is to protect the brokerage from unexpected losses, but it can reduce trader profits.
Brokerages that don’t use a central dealing desk receive multiple bank streams, with the banks actually executing trader orders. This usually results in more competitive pricing and fewer restrictions for traders. If you’re concerned about trading terms, it’s worth asking any brokerage that you are thinking about joining.
How to Choose the Ideal Broker
There are several factors that you need to consider when you choose an online CFD broker. The basics, like trader security, apply to everybody. Other criteria will depend on your individual trading goals, experience level and market preferences. We’ve composed a convenient checklist of relevant factors that will help you to find the right broker.
Variety Account Types
Fees, Commissions and Charges
Variety Account Types
Any good broker will usually offer a wide range of account types. These should be designed to bring traders a top quality service that matches their experience level, budget and trading goals. If you’re serious about trading, you should look for a brokerage that will encourage you to progress as a trader and will offer you account upgrades. It’s important to build a good working relationship with an account manager and learn how to get the most out of spreads, signals, price alerts, promotions and any possible benefits that come with your trading account. Account managers can be flexible about giving committed traders extra tools and resources – don’t be afraid to ask for more!
Assets & Markets
Even if you’re interested in a particular asset class like forex or cryptos, it’s worth checking whether a broker has a full range of at least 1,000 assets drawn from all asset types, including stocks, indices, ETFs, bonds and commodities. A comprehensive asset index is a sign of a serious brokerage and you may find that you want to diversify your trading or break out of a stagnant market.
New technology has seen a big improvement in trading platforms. Every broker should offer a well designed platform that allows leveraged trades on every major asset class. You should expect to have easy access to price alerts, heatmaps, signals, social trading, trader reports and analysis, live charts, indicators and cross platforms. Avoid any broker that doesn’t have them.
Fees & Commision
All brokers apply different fee structures. These can vary again within a brokerage according to account types. Generally CFDs are a cost effective trading solution, but it’s definitely worth checking whether there are fixed or variable spreads, what the rules are regarding rollover, and whether there are account management fees (deposits and withdrawals). Brokers have to make a profit in order to function. The good ones will be entirely transparent about their fees and commissions.
Most traders are happy to use bank wire transfers or credit/debit card funding for deposits and withdrawals. Many brokers also support a range of alternative payment methods such as Skrill, Western Union, PayPal and Neteller. If you prefer a particular payment method, check that it is available.
It doesn’t matter whether you’re an absolute beginner or a highly experienced full time trader, if you want to succeed you will have to invest in your own financial education. Every good brokerage understands the need for trader education and provides the best possible range of learning resources. These should include trader eBooks that cover all the basics of trading and investing, VOD film tutorials, trading guides, webinars and one on one sessions with an experienced trader. The quality of a broker’s education center is usually a good indication of how reliable they really are.
Effective trading is only really possible if you have top quality information about market conditions. Because the markets are in continual flux, that information has to be in real time wherever possible. You also need tools to simplify your analysis and management of open trades. Every broker should provide a detailed economic calendar, live signals, alerts, live charts, daily reports, and market updates as a basic service.
Scalping the Market
Scalping is a short term trading strategy that involves a ‘hit and run’ approach to open positions. Some forex brokers don’t allow scalping as it eats into their own profits. If you’re planning to use scalping, check whether your broker permits it.
Rollover is interest earned or paid on Forex positions held overnight. It is calculated according to the difference in interest rates between a currency pair. For example the USD/JPY currency pair comprises the US dollar and the Japanese yen. Each currency has a different interest rate that changes continually with the movement of prices. If you sell a currency that pays a higher interest rate, you pay interest and experience a Negative Roll. If you buy a currency that pays a higher interest rate, you earn interest and experience a positive roll. Negative Rolls are normal in forex trading, but you should check whether your broker offers Positive Rolls – not all do.
Hedging is a strategy that some traders use when the market direction is uncertain. The basic principle is to try and reduce losses by opening both BUY and SELL positions on the same currency pair. Hedged positions may allow you to identify support and resistance levels and predict where price action will occur. The strategy is not popular with all traders and tends to work better in range markets. Hedging is much less relevant to trending markets. Many traders recommend waiting out uncertain markets, or even switching to other assets. Not all brokers and regulators permit hedging, so it is better to check first.
The global forex markets – and other markets – are available on a 24 hour basis. You need to know that you are covered by effective customer service whenever you are trading. Check that your broker provides full 24/6 coverage and that their reps are competant and helpful.