With
currency trading becoming ever more popular, the number of forex brokers
competiton is growing at a rapid rate. What should one look at when deciding
which broker to open an account with? These are the important points to
consider.
Spread
Because
currencies, unlike futures and stocks, are not traded through a central
exchange, the spread can be different depending on the forex broker you use, so
it's well worth checking a few out before you open an account. Most forex
brokers competiton 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 forex brokers competition 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 favor
before you start to make a profit. Fixed spreads are generally slightly wider
than the variable spreads are when at their narrowest, but over the long term
fixed can be safer.
Execution
Some
forex brokers competition will show live prices on their trading platform, but
will they honor them 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 now, not sit around waiting for ten minutes
whilst your order is confirmed!
Trading
Platform
Good
trading software will show live prices that you can actually trade at, not just
indicative quotes. It will 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.
Finally,
before opening an account do a little homework and find out about the company.
Forex broker's competition is regulated, 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 steer clear.
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