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3 pips
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When choosing a forex broker, take care to choose a brokerage which will provide you with the best service available. Poor execution service can be extremely costly in the world of fast-moving foreign exchange markets.
Initial Forex Broker Considerations
- What regulatory body oversees the broker?
- How are your funds insured?
- How fast are their executions?
- Wealthy private currency traders
Types of Forex Brokers
- Market-Maker: A forex market-maker will make a two-sided market to customers of their dealing desk. They will take either side of a trade provided that they buy on the bid and sell on the offer side. A forex broker that is also a market-maker will take the other side of a client’s trade. They will then either offset that trade or elect to keep it on their books, depending on the size of the transaction and on how they view the market’s direction. An example of a market maker/dealing desk broker is FX Solutions or FXDD which offers forex execution via the MetaTrader 4 trading platform.
- ECN: An ECN or Electronic Communication Network broker does not have a dealing desk. Instead, the ECN broker provides an electronic platform for traders, market makers, banks and other market participants to enter competing bids and offers on their system. They also execute trades under the ECN broker’s name, providing both parties with anonymity and credit confidence. A small fee is generally charged for each transaction, and Swiss forex broker DukasCopy is an especially notable ECN.
- No-Dealing-Desk: An NDD or No-Dealing-Desk forex broker lacks a dealing desk but offers multiple liquidity providers instead. The providers post their best bids and offers with the NDD which then fills client orders accordingly, often increasing the dealing spread to earn a marginal profit. The more providers a NDD broker has, the tighter the bid/offer spread generally becomes. An example of a successful NDD broker is FXCM.
- Wealthy private currency traders
Internet Forex Trading Platforms
Most forex brokers provide their own trading platform to allow trades to be input into their systems, or they are compatible with the popular MetaTrader 4 platform or some other Internet trading service.
If you will be using software to automate your forex trading, like an expert advisor or forex trading robot, the ability to use this software with the trading platform offered will be a prime concern when selecting a forex broker.
Other Important Forex Broker Considerations
- Size of transactions. Will you be trading full lots (100,000 units), mini lots (10,000 units) or micro (1000 units) lots of currency?
- Are orders executed automatically on a system or manually through a network?
- How tight are the bid/offer spreads?
- Are spreads fixed or variable?
- Are commissions charged or are they part of the spread?
- Does the broker offer margin, and if so, how much leverage?
- Does your margin balance earn interest?
- What is the broker’s position rollover policy and charges?
Check the Forex Broker’s Reputation
The last, but certainly not the least, consideration to take into account when choosing a forex broker is what kind of reputation they have earned among their customers. Avoid just reading the testimonials posted on their website. Instead, be sure to take some time to find quality, independent opinions online about the forex brokers you are seriously considering using.
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