Choosing a Broker

To trade Forex you are going to need a broker, there is no way around it. The problem is you can't just pick any broker, a traders choice in a broker can make or breaks the traders career. In this lesson I will discuss what to look for in a broker and what to avoid like the plague.


How reliable is the broker's trading platform?


There is nothing worse than poorly made broker software freezing on you just as you're about to close a trade that was moving against you. By the time you reboot the software the trade can be in far deeper into losing territory than you would have ever allowed. This is why before you commit to a broker you have to open a demo account and try their software. If it runs well for a few days you should be alright. If it does not and you have your heart set on the broker ask if they have any alternative platform software. Otherwise, move on and find a different broker/platform.

The broker's platform is your main trading tool and if your tool is broken you can never do a good job.

All broker platforms should do at the very least these few things:

1. Allow you to enter trades quickly and effectively with only a few mouse clicks (preferably no more than 2-3);

2. Ask you for confirmation before entering a trade (you do not want to accidentally click a button and find yourself in a terrible position);

3. Provide real time tick by tick (updated by the second) Forex quotes;

4. Allow you to trade all the major pairs and most cross pairs (GBP/JPY, NZD/JPY);

5. Give you detailed, always viewable account summaries with information like account balance, margin (both useable and used), open trade profit/loss and closed trade profit/loss;

6. Give you detailed account statements updated at least once per day.

If your broker does not provide these standard features we highly suggest you look for a broker that does.

Some additional features you could want are:

1. Built in charting software;

2. Quick entries and exits (entries and exits at the click of a button);

3. The ability to set price alarms;

4. The ability to hedge a position. (Click here for explanation of hedging it is under the 'Long, Short or Botht' title);

5. The ability to be credited for any losses (as far as I know no broker allows this but it would be cool if they did);


Is the platform user friendly?

This is not of major importance because after a few weeks even the most user unfriendly platform will be an ease to use but it is still good to have something that is easy to navigate around. You may not know it yet but some days when something big is happening in the market you will probably be doing an all nighter, your body running purely on caffeine. When that happens, trust me. You do not want to have a platform that is a navigational brain teaser. Many a trader has punched a hole through his/her $1,000 LCD screen for just that reason..


Spreads and additional charges

Spreads are one of those things that seem insignificant. 1 pip extra spread here, 1 pip less there. Who cares, right?

WRONG SOLDIER!

Let's say you take 1-2 trades per day on GBP/USD with a broker that has a 4 pip spread as opposed to a 3 pip spread. By the end of the week you are paying about 8 pips extra spread. By the end of the year, you've given away 400 pips. For some traders 400 pips is 4 months profit. For some it's 4 weeks. Either way it does add up.

Now if this broker is perfect in every other way but charges a little more on spreads you can still go with it. Think of it as paying an extra few cents per liter (gallon) for premium petrol (gas).

The real problem with some brokers is they hide some crazy rules in the fine print of user agreement contracts. Some even have rules that give them the power to close down your account without refund for scalping or carry trading. The less drastic ones include fees for not using your account, basically charging you if you do not trade often enough. For example if you do not take one trade in a month they take $50 from your account.

Make sure you ask repeatedly about any extra fees or charges they have. When I talk to a broker on the phone about opening an account I will ask 3-4 times if they have any extra fees or charges. Sometimes I will even scare them into telling me the truth by telling them I am recording the conversation.


How helpful and quick to reply is customer support?

Always call the technical and customer support teams a few times before committing to the broker. Do not make the mistake of calling the sales team! They are almost always friendly and respond quickly because they are trying to sell you something. I call tech support and customer service to test how easy it is to get through to them and how helpful they are. The idea is to call several different times throughout the day..

When you are trading, hundreds of things can go wrong. For instance, your internet my drop out and you have no back up connection. If you are in a trade when this happens and you have no idea when it will come back up you may want to exit. This is when you need to call the customer support team to close all your positions. If they put you on hold for 15 minutes who knows what could happen with your position? This is vital to all traders. It is not a common occurrence but when the crap hits the fan you want to be sure your broker is ready with an umbrella.


Leverage

You will want to have a broker with flexible leverage. If you have a small account you may choose to leverage yourself a little higher at 200:1 (even though it is not recommended). When your account grows to a larger size you will probably want to drop down to 100:1. This is why you want to be sure from the start that your broker is versatile with their leverage


Account types available

I believe in thinking ahead so let's do that now. Imagine you start with a micro account. You become a good trader and build that account up. When your account reaches a few thousand dollars, you might want to upgrade to a mini account and after that a standard account. If you get really big you might want to upgrade to an institutional account that provides extra benefits. That is why you need a broker that has all these account types so as your account grows you can move up.


Summary

Realistically you will not find a broker that has all these features but you will find some that are pretty close to fulfilling all the criteria. Just use common sense here. No broker is perfect. Just try to find the best of the lot. Also do not bother Googling the brokers name for forum posts on bad experiences with the broker. Just about every broker around has their own group of haters. Usually these are traders that lost it all through their own stupidity and blame the broker.