5 Critical Features for Any Forex Broker
When trading the Forex market, there are certain features that you will want to be aware of when it comes to your broker. Below is a short list of some of the most important criteria when choosing a Forex broker:
While this seems like a no-brainer, many new traders do not know about the various regulatory bodies that are out there. If you are using a Forex broker, it needs to be regulated. Also, you should be aware of where it is regulated. This is one of the things most people overlook. As a general rule, you will want to see a country that is known for being business-friendly (at least in terms of the rule of law) as being the country of registration.
One of the most popular places to regulate is Cyprus. This is because the Cypriot authority is a little more lax on its Forex trading laws. By regulating there, you can claim that you are “regulated in an EU country”, which is technically true. But having said that, you could claim to be “regulated in North America” by being registered in Mexico. This implies the same stringent protections you get in the US or Canada. Common sense sees the folly in that argument.
Believe it or not, not all Forex brokers offer charting. This is becoming less and less of a problem, but there are some that don’t. They generally will offer an ECN, or Electronic Communication Network, and sell an add-on for charting such as NinjaTrader. Provision of proper charting is a sign of a broker’s integrity – failure to provide this is a sign that they may be less-than-honest.
Not all brokers offer the same currency pairs. Some will offer over 100, while others will only offer the 20 most common pairs as an example. One of the pairs that surprises people the most in this regard is CAD/JPY. Since the Canadian dollar and Japanese yen are both major currencies, most traders assume that the cross pair would be offered. All brokers are going to be different, and a diligent review of available trading pairs is essential. The last thing you want to do is turn around and close out an account right away because of an errant mistake.
Depending on what part of the world you live in, leverage can vary. Leverage gives you the ability to trade large amounts of currency with a small deposit. Some broker out there now offer as much as 700-1 leverage, and depending on your trading style, leverage can be good or bad.
By 700-1, this means that you can control $700 for every $1 you deposit. Because of this, it can supercharge your returns, as well as losses. Leverage is something that should be used sparingly.
It should also be noted that the United States regulatory authorities recently cut the amount of leverage that Americans can use down to 50-1 for major pairs, and 20-1 for crosses.
When you are learning to trade, it is always helpful to have a technical analyst available to read. Some brokers are very generous with their offerings when it comes to this kind of thing, and many are now employing professional technical analysts that post newsletters every day. This can be very helpful for the new trader.
When you are looking to do business with a broker, don’t forget that they are there to serve the customer, and it pays to shop around – just like any other purchase. Forex brokers tend to be very competitive on various features and with a little bit of research you can get a lot more than you realize.