Choosing the right broker in 7 steps – Part 2
Choosing a good broker is very important when you decide to trade live. But not all the good brokers are good for you; you have to take the time to find the right broker to fit your trading style. There are many brokers out there so you have a variety to choose from. As with most skills, there are some basic steps you need to take in order to achieve success. Now we will discuss the last four, which include costs and fees, platforms, performance, and extras.
Back to; Choosing the right broker in 7 steps – Part 1
Costs and Fees
Take into account all declared and hidden fees before opening a live account.
The fees that brokers charge might turn a profitable month into a losing one, especially if you have a small account. The forex market supposedly doesn´t have commissions or fees, but there are fees, of course. Spreads are one of the primary fees that brokers charge. Some have higher spreads than others, but that doesn´t necessarily mean higher costs. There are many other fees besides the spread, some of them declared and some of them hidden. Slippage is one of the hidden costs a trader is often forced to pay. A 2-3 pip slippage on every trade adds up at the end of the day. If you are trading one lot and you execute 4-5 trades a day, a two-pip slippage on each trade means that at the end of the month you have paid your broker/dealer $2,000. That´s a large fee for most… imagine if you traded 10 lots!
A rollover occurs when you exchange two currencies with different interest rates. If you buy the currency with the highest interest rate you normally get an interest credit as a yield for the days that you keep the position open. If you are familiar with the interest rates of different currencies and you are registered with a broker that doesn´t credit the rollover, then you assume the cost. On the other hand, if you are not familiar with interest rates and your broker applies the rollover, then you might end up paying for the trades where you bought the currency with the lowest interest rate.
Phone costs may not seem like much until you have an issue with your broker and need to make a few international phone calls
Other costs include the funding, withdrawal, and phone costs. If you are to last in this business you must find a broker that suits your payment specifics so your funding and withdrawal costs don’t get out of hand. The bank wire and PayPal costs usually vary between $50 and $70 for both sending and withdrawing funds, so it would be much cheaper to find a broker that accepts credit cards to cut this cost. There are brokers that don´t accept credit cards issued in certain countries, so you must check with your broker first to see if your country is in the accepted list.
Phone costs may not seem like much, but when you have an issue with your broker and there are several international phone calls you might end up with a phone bill for hundreds of dollars. So it would be nice to be working with a broker with an eight-hour live chat service at least. There are a few brokers that charge you if you don´t meet a minimum trading volume. Remember you want to trade based on your strategy, not on your broker’s, especially if you intend to open a small account.
The platforms that a broker provides when you open an account are vital since all actual trading occurs through these. First of all, you should make sure that the broker offers all types of trading platforms. The basic downloading platform, which might be MT4, MT5, Ninja Trader or a custom platform, isn´t optional as it is always provided with the account. Apart from that they should offer an online trading platform that you don´t have to download and a mobile trading platform. You don´t know where you might be when an important event occurs and you have an open position. If you want to use someone else´s PC and downloading is not allowed, it would be nice to have a web-based platform. Likewise, a mobile trading platform would come in very handy when you are not in front of your trading station, either at the office or at home.
Find a broker that offers different types of platforms.
The trading platforms must function very well… I´ve had live accounts with several brokers whose trading platform used to freeze from time-to-time, especially during economic news releases. It gets really frustrating if you are a news trader. What if you have an open position and the news happens to be negative for you? You wouldn´t be able to close the position and end up with considerable losses. So I would advise you find a broker that allows trading during news time. There are other brokers whose platforms freeze even during normal times. You don´t want to do business with these types of brokers, so you should always try them out with a minimum deposit first before you go all in.
The platform should come with all the necessary trading tools and indicators or at least with the common ones. It should be updated automatically, too, or present you periodically with the option of updating it to include the new indicators that get introduced to the trading community. The platform should be convenient for software as well, meaning it should accept the new indicators and trading software/robots that you want to introduce to the platform. Automatic trading has advanced a lot nowadays and new indicators are developed constantly, so a trading platform which doesn´t accept third-party software doesn’t meet the minimum requirements.
The first and foremost common contact you have with your broker is through their website. Serious companies have well-structured websites and so should your broker. Is everything clearly displayed and explained in the website? If so, you won´t have to waste time through customer support when there are issues or something you don´t understand. It would be nice to have all the different types of accounts and platforms that the broker offers in the main page. A decent broker should have a section on their website where you canlog inn with your username and password and process your financial transactions online. This would save the hassle of going to the bank or calling you credit card issuer every time you want to do a withdrawal or deposit or if you need to move funds from an account to another.
A good customer and back-office service is very important for a trader. There are plenty of brokers out there who excel in everything except customer service/client support, and this eventually drives the clients away. A good customer service should always be competent, ready to help and operate on more than eight-hour shifts. Some serious brokers have customer service offices in several different time zones so they can offer support 24 hours a day and in many different languages. Since forex participants are global, the brokers should offer a live-chat service so the clients don´t have to call from the other side of the world. It makes the communication process that much easier. The support offices from different departments should all be connected and be able to forward your messages or pass you through to the appropriate department, so you don´t have to disconnect and try several times until you reach the right department.
A good customer support service is essential.
Serious brokerage companies have a large client base, meaning the demand for different financial instruments is high. Therefore, they provide their clients with a wide range of products so every type of trader can find himself. Some traders prefer to trade the major currency pairs while others feel more comfortable with the crosses. There are traders as well which specialize in the exotic currencies, so more and more brokers are trying to build a reputation are introducing the exotics to their platforms. Besides that, adding financial instruments other than forex is always welcome by the traders. Many brokers now provide equities, commodities, precious metals, indices etc. for their clients.
Apart from the non-trading aspects of performance we talked above, the broker must ensure a great performance in the aspects that are related to trading. As we explained in the first part of this article, the trade execution must be as close to the actual price as possible. We understand that during periods of increased volatility, such as news releases, there might be some slippage, but it´s unacceptable to experience slippage or execution delay all the time. That turns your winning trades into losing trades. Stop hunting is even worse – some dodgy brokers spike the price in their platforms so it appears that the price has reached your stop loss in the charts – when in reality it never did. It is for all these reasons that you must go through a trial period first with several brokers if you decide to go live. You should also ask the broker if they guarantee the stop losses and minimum margin because you might find yourself in situations such as the SNB peg removal… where many traders ended up with negative balances. If they do, then they must offer refunds in such situations. It´s understandable that there might be technical faults occasionally, but your broker should always refund you if the occurred losses weren’t your fault. For these reasons, you should ask them about their refund policy as well.
Many brokers offer extra services nowadays.
Apart from the main fields of the brokerage business that a broker must offer and excel, it would be nice to get some extra incentives from them. The competition has forced brokers to offer many incentives to their clients. Some brokers have bonus schemes which might go from 30% to 60% depending on your deposits. Of course, you won´t be able to withdraw the bonus funds since they´re not your funds, but you can trade them if you run out of your own funds. It´s been a while now since cash back rebate incentives have been introduced to the industry. Your broker basically pays you a fraction of their commission in pips to the volume you have traded over a period of time. For example, if you had traded $6 million a month (average 3 lots a day) and your broker pays you 0.3 pips as a rebate, at the end of the month you´ll have $180 credited to your account. Free webinars are widespread nowadays, so you´ll find them available with most brokers. Another relatively new development in the forex industry is social trading brokers. TradeO and eToro are two of the most reputable brokerages. You can follow their most successful clients and combine their signals services with the brokerage services.
Yet another way to decide which broker to choose is to surf the reviews on the web. There are many sites that can provide you with broker reviews and rating, but the downside to these reviews is that they are submitted by traders who might not be very competent in this field. Some of the traders just submit reviews after they have lost their account due to their own lack of market knowledge – and they blame the broker for this. View FX Leaders series of in-depth broker reviews to help chose the right broker for you. Our reviews are written by professional traders who try out these brokers for a certain amount of time, so the losing client issue is eliminated here, and you can get a straight forward and objective review and base your decision upon it.
This may also interest you:
- Back to; Choosing the right broker in 7 steps: Part 1
- Check out FX Leaders Forex Trading Platforms reviews