Choosing a Forex Broker

Not got a forex broker account yet? Our forex angels have put together a list of top tips for choosing your forex broker.

Spread

The difference between the price you can buy at, and the price you can sell at, is called the spread. It's one of the hidden costs of trading, and applies to any market not just forex. Because currencies, unlike futures and stocks, are not traded through a central exchange, the spread can be different depending on the broker you use, so it's well worth checking a few out before you open an account. Most forex brokers publish live or delayed prices on their websites so you can compare spreads, but check if the spread is fixed or variable. A fixed spread means exactly that - it will always be the same no matter what time of day or night it is. Some brokers use a variable spread, which might appear to be nice and small when the market is quiet, but when things get busy they can widen the spread which means the market must move more in your favour before you start to make a profit. Fixed spreads are generally slightly wider than the variable spreads are when at their narrowest, but smart forex angels know that over the long term fixed is safer.

Execution

Once you're ready to trade, will you be able to do so at the price you can see on the screen? A quality forex broker will be showing you live prices on their trading platform (see the next section), but will they honour those prices when it comes to pushing the Buy or Sell button? The best way to find out is to open a demo account and give them a test drive. This will also give you the opportunity to see what the speed of execution is like - when you want to buy, you want to buy not sit around waiting for ten minutes whilst your order is confirmed! Anything longer than a few seconds is too slow.

Some forex brokers offer guaranteed Stop orders. With these orders, it doesn't matter how quickly the market might move against you, your stop will be honoured at the price you set. Many brokers say they will "try" and guarantee stops, but that's very different to actually doing it. If the broker you are looking at makes any claims like this, check out exactly how strong that guarantee really is.

Trading Platform

All the forex brokers offer their own trading platforms. Some look remarkably similar, because some smaller brokers licence the software from the larger outfits. A good trading platform will show you live prices that you can actually trade at, rather than just indicative quotes. It will also offer Limit and Stop orders, and ideally will let you attach these to your entry order. One-Cancels-Other orders are another useful feature - they mean you can set up your trade and then leave the software to get on with it. And the most important feature of all - can you actually understand the platform? Having all the bells and whistles is of no use if  you can't use them, so again, get a demo account and give it a go.

Taking things further, if you are interested in linking your platform into other software, such as a more advanced charting package, or even your own software for automating your trading, you will want to have a look at any API capabilities the platform might offer. API stands for "Application Programming Interface", and it's a way of connecting different programs together. Not all brokers open up their platform in this way.

Support

Forex is a 24 hour market, so your forex broker should offer 24 hour support. You might not be trading at 3am, but that could be what time it is in your forex brokers head office on the other side of the planet, so make sure there will be somebody there to pick up the phone if things go wrong. The best way to test out the support is to call them up or email them a few times before you open an account. Make a nuisance of yourself - if they don't treat you with the respect and attention you deserve before you become a customer, it won't bode well for the future. You'll also want to find out if you can close positions over the phone - essential in case your PC or internet connection go down at a critical moment.

Backing

Last but most definitely not least, before you open an account do a little homework and find out about the company. Forex brokers are regulated of course, but that doesn't mean they all have equal backing. If the market collapses, you want to know that they've got the reserves to cope with it and will still be around when you decide to withdraw your cash. If a broker is elusive when it comes to questions about their parentage and financial backing, then savvy forex angels steer clear.

The forex angels say: Choosing a forex broker isn't difficult, but don't rush the decision. Check out a few, and always get a demo account first to make sure you're happy with the way everything works before sending off your opening balance.