How to choose a good broker

choose a good broker

You are serious about trading forex but you have no idea how to choose the best broker or what are the criteria. This was always the hardest part for me because every strategy (especially scalping) has a degree of broker feed dependency. The very first question that comes into my mind is how safe my money is? If I’m going to lose them I’d better lose them myself, I’d like to be the only one to be blamed. So, is your broker of choice regulated or not? Because if is not, I’d think twice before making a deposit. You have no guarantee, they can scam you anytime. One morning you wake up and bang, the website is gone, and so is your money. I’m not even going to mention about stop loss hunting (the spread is artificially increased so your position is stopped sooner than it should). The broker of choice must be registered with NFA or CFTC if it is US based or FSA if it is registered in UK.

Then, there is the spread. How big is it for major currencies? Is it fixed or non-fixed? Do their maximum spread value suits well for your strategy? If you are scalping you are interested of lowest spread as possible for the desired currency and also high execution time. Here is the list of brokers where you can compare real time spreads.

Is the broker dealing directly with you (ECN) or is just a reseller? ECN brokers are the right choice. Don’t be shy, ask questions and open a demo account before depositing real money with them.

What leverage do they offer? Leverage can work for or against you. Leverage is nothing but a loan, you can use those money to earn big profits or you do nothing and you have to give them back and the larger the loan, the greater the loss. Standard leverage is 100:1 which means that you can trade $100,000 of currency with a margin of 1% and you have to deposit only $1,000.

What is the real slippage? Slippage is the difference between the price of a trade and real price the trade gets executed. Due to busy servers or another network related errors there are delays in execution that can cost you big money. Opening a demo account is just to have you familiarized with their feed but in order to test what the real slippage is I advice you to open a real account and trade very small lost. Pay attention to stop loss hunting also and test them at least a month before depositing serious amounts of money.

What is the commission? You have to pay the broker for the trades it executes in your behalf. Some brokers don’t charge commissions but their spread is larger while other charge commissions but their spread is lower and the execution time is better. Or not. Nobody can tell those before actually open a live account with that broker of choice.

As a conclusion you have to focus on those key points:
1. ECN  or not? Regulated or not? If it’s regulated by NFA be careful at FIFO (first in, first out). You have to close the trades in the same order you opened them. If you trade using a forex robot make sure it has FIFO enabled otherwise you won’t be able to properly close your basket. Same applies if you are using multiple EAs on the same account.

2. What is the leverage? Does it suit to your trading style?

3. What is the spread? Is it fixed or non-fixed? What is the maximum spread?

4. Do they charge a commission per trade? How much do they charge?

5. Slippage can kill a good strategy, what is their average slippage? Just do a little research on forums, there is always good to benefit from the experience of others.

6. What is their average execution speed?

7. Just email or call them and ask them questions. How polite and helpful are they?

8. For how many years they activate on the market? Read reviews about them

9. Do they allow scalping or EA trading? (just ask them that, there are brokers that don’t allow scalping or EA trading)

10. Do they allow hedging?

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